An Individual Voluntary Arrangement (or an IVA) is a legal method of resolving unsecured debt problems. It allows a person to repay a percentage of their unsecured debt to their creditors in affordable monthly instalments over a fixed term — usually around five or six years. Here at Debt Movement, we’re often asked “could my IVA fail?” And we always reiterate that both clients and creditors are legally bound by the Individual Voluntary Arrangement and must comply with what is set out in the proposal. If you do not do this, you run the risk of your IVA failing.
There are various things that you can do to potentially put your IVA at risk, however, circumstances can change, and your IVA will not fail instantly. You will first be given a notice of breach, which highlights how you have not complied with the terms of your arrangement and what you can do to rectify this.
What is an IVA Breach?
By definition, a breach is the act of breaking an agreement. Things that are considered an IVA breach include:
- Falling three months into arrears with your contributions.
- Failing to provide the information required to complete your income and expenditure review.
- Failing to pay any additional income that has been identified.
- Taking out finance greater than £500 without permission from your Supervisor.
- Failing to declare a windfall to your Supervisor.
- Failing to do something that your Supervisor requests you to do — for example, failing to sell an asset you agreed to sell in your proposal.
- Failing to pay in any money you have received from selling any assets.
What Happens If I Breach My IVA? Could my IVA Fail?
A notice of breach will identify the breach and explain how you can rectify this in a given time-frame. Should you fail to remedy the breach, the Supervisor may be required to arrange a meeting of creditors in which they will be given the option to terminate your IVA.
It is important to remember that, if your circumstances change in any way — if you have a decrease or increase in your income, for example — you must inform your Supervisor of these changes. Notification of changes will allow your case to be reviewed and ensure that your IVA is affordable, preventing you from breaching the terms and conditions. Any changes must be disclosed to the Supervisor of your IVA.
How Can I Keep My IVA on Track?
There are things that can be done to help keep you on track with your IVA and avoid any problems.
1) Budget Carefully
Your budget was put together to help you keep your living expenses covered over the term of your IVA, so you should use this to manage your money between reviews. If you need help budgeting, why not take a look at our budgeting blog?
2) Inform Your IVA Supervisor If You Are Struggling with Payments
Your IVA Supervisor will be there to support you throughout your IVA journey, and you should notify them if you are struggling with payments. There are procedures to provide you with some relief in these instances. When your case has been reviewed — and depending on whether you are experiencing long-term or short-term difficulty — your Supervisor will provide you with solutions.
3) Keep Track of All IVA Paperwork
This may sound like an obvious one, but it is all too easy to lose track of things. File all paperwork away so that it is always there at hand should you require it.
4) Address Any Issues as Soon as They Arise
If there is an issue with your IVA, bringing it to the attention of your Supervisor as soon as it has been identified is the best way to help things run smoothly and keep your IVA on track. As well as keeping them informed, should you receive contact from your Supervisor, please be sure to respond and reach out to them regarding any missed calls/messages.
5) Don’t Be Afraid to Ask Questions
Your Supervisor is there to help resolve any problems you may have and to answer any queries, so do not hesitate to reach out.
What Happens If My IVA Fails?
If all other options have been explored and you cannot prevent breaching your IVA — resulting in its failure — you will be issued with a letter of termination to confirm that your IVA has come to an end.
Should your IVA be terminated, you will no longer be protected from the actions of your creditors, and you will be liable for the remaining balance of your debts. Creditors can start/resume interest charges on your debts, and there is a chance that they may take further legal action against you, and may even petition to make you bankrupt. The IVA will no longer be under the supervision of an Insolvency Practitioner, and you will be responsible for liaising directly with all creditors or their representatives.
Will I Still Have to Pay the Insolvency Practitioner Fees If My IVA Fails?
As part of their termination duties, the Insolvency Practitioner will distribute any remaining IVA funds, giving priority to their own fees. This has the effect of reducing the amount being paid back to creditors.
What Happens Next?
In the event of a failed IVA, depending on your circumstances you may be able to:
- Propose another IVA
- Petition for Bankruptcy
- Enter into a Debt Management Plan
- Apply for a Debt Relief Order
Before entering into a new agreement, please seek further advice to ensure you are aware of the best option for you and your given situation. The Money Advice Service will be able to provide you with advice on this.
With an IVA, honesty is the best policy, and you should get in touch with your IVA provider should any issues arise.