While an Individual Voluntary Arrangement (IVA) is a very flexible debt solution, there still are some rules involved which you need to abide by. 

Breaching the agreed-upon terms of your IVA can have very dire consequences which you need to be aware of. 

In this post, I’ll be discussing what the consequences of breaching your IVA are and what you should be doing in case this happens. 

iva failed at final review

What Happens if an IVA Fails? 

An IVA is a formal and legally binding agreement for both you as well as your creditors.

It places a number of restrictions on your creditors as well as you and you have to stick by those restrictions throughout the entire duration of your IVA to ensure its success. 

You have to abide by all of the rules detailed in the IVA protocol as well as any specific terms that apply to your particular IVA which would have been stated within your IVA proposal. 

If you happen to breach any of the terms detailed either within the IVA protocol and/or your IVA proposal, then this could lead to your IVA failing. 

What can be Defined as a Breach of an IVA? 

It’s important to note that your IVA won’t fail immediately when you violate the term(s) of your IVA proposal

When you break the term(s) of your IVA, you will be sent a breach notice by your insolvency practitioner (IP). 

A breach notice will be a document that will detail what you have done to break the terms of your IVA and what actions you can perform to make it right. This could include: 

  • Missing payments, paying them late and/or falling behind on them to the point where arrears equivalent to three months’ payments have built up.
  • Refusing to do something that your insolvency practitioner requested you to do. An example of this would be selling off an asset which you had agreed to sell. 
  • Hiding or refusing to pay any bonus or additional income which you may have received
  • Refusing to pay money that you obtained from selling an asset or assets. 
  • Obtaining a loan of more than £500 without obtaining your IP’s permission first. Please note that this includes informal loans obtained from family or friends. 
  • Failing to provide the requested information needed for your annual review. This would include documents regarding your income (such as payslips) as well as documents regarding your expenditure (receipts, bank statements, etc.)
  • Hiding any windfall sum that you may have received. A windfall sum is an amount of money which you receive unexpectedly such as through a lottery or through inheritance. 
  • Failing to act upon any additional term which may have been included within your IVA proposal

What Happens When I Violate the Terms of My IVA?

As mentioned earlier, you will be sent a breach notice.

The breach notice will have all the details of what the problem was as well as what you can do to fix things. 

Please note that you will also be given a timeframe within which you’ll have to act upon the instructions detailed within the breach notice so it’s important you do this as soon as possible. 

If you fail to act upon what’s stated within your breach notice, your IP will be forced to call a meeting with your creditors and present them with the option of cancelling your IVA. In that case, your IVA would fail and you’d still be in debt. 

The actions required of you in your breach notice are typically actions that are needed to fix whatever problem you caused by breaching the terms of the IVA

For example, if you failed to provide adequate information for your annual review, then you would be required by the breach notice to do so. 

If you were late to make a monthly payment or fell behind on your monthly payments, then you will be required to submit it. If your financial circumstances have changed and you can’t afford the debt payments, then you can talk to your IP about this. 

They might be able to talk to your creditors and get your debt payments reduced. Remember that your IP has the power to reduce your debt payments by 15% on their own. For debt payment reductions of more than 15%, they have to seek permission from your creditors. 

In most cases, breaches of IVA terms occur due to the worsening of financial circumstances of the debtor. 

If you’re going through something or feel that something is going to cause you to breach the terms of your IVA, it’s a good idea to get into contact with your IP and let them know beforehand. It can save you from a failed IVA and a lot of unnecessary stress. 

Please note that any changes in your financial circumstances, whether good or bad, need to be reported to your IP. 

If you are unsure about whether or not something will violate the terms of your IVA proposal, you should seek advice about it from your IP. 

What Should I Do if an IVA Breach is Unavoidable? 

Communication with your IP is extremely important in such cases.

Contact your IP as soon as you can and they might be able to make amends to the terms of your IVA proposal and/or talk to your creditors so that your IVA does not fail. 

However, if your creditors don’t agree and your IVA fails, then you’re going to have to start looking towards other debt solutions. 

When your IVA has failed, your IP will send you a termination letter as well as a failure report which will detail how much debt you have paid back as well as how much you still owe. 

It’s a good idea to seek debt advice from a professional at this point to determine what your next course of action should be. 

Your IP may also help you get in touch with a debt help professional who could give you debt advice. 

Whoever, you get debt advice from, just ensure they are authorised and regulated by the Financial Conduct Authority (FCA). I recommend obtaining advice from debt charities such as Payplan or Stepchange

Finding a debt solution after your IVA failed (e.g., if your IVA failed after 4 years) can be overwhelming but getting help from professionals can certainly set you on the right path to becoming debt-free.

what happens if i stop paying my iva 6 months

Conclusion 

Breaching your IVA is something that should be avoided at all costs and while it doesn’t cause your IVA to fail immediately, it can certainly jeopardise its success. 

Make sure to contact your IP immediately if something like this happens so he/she can advise you on what to do next.

About the author

Scott Nelson

Scott Nelson is a financial services expert, with over 10 years’ experience in the industry, including 6 years in FCA regulated companies. Read more
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