Dealing with Creditors When IVA Failed After Years In One
It makes sense for you to be overwhelmed if your Individual Voluntary Arrangement fails.
Being in debt is stressful enough and when your debt solution fails, then it’s understandable to feel like giving up.
However, in order to mitigate the negative consequences of your IVA failing, you’re going to have to be proactive and address your creditors’ concerns.
What Happens When an IVA is Terminated?
Your insolvency practitioner (IP) will notify you when your IVA fails and will send you a letter of termination.
Along with the letter of termination, you will also be provided with a failure report of your IVA by your insolvency practitioner.
The failure report is a crucial document which you can utilise to plan your next step for addressing your debts.
The failure report will include details about your remaining debts, your creditors as well as how much debt you owe to each creditor.
Of course, depending on your financial circumstances and by assessing the failure report, you can start looking at other options to take care of your remaining debt.
The Insolvency Service will also be informed by your IP to ensure that they know that your IVA has failed so they can remove your name from the Individual Insolvency Register. Your name will typically be removed from the IIR within three months of your IVA failing. Please note that your IVA will also be marked as failed in your credit file and it will stay within your credit file for six years from the date on which it was approved.
It’s important to note that once your IVA fails, your IP will also inform your creditors. Thus, your creditors will now know that they are no longer bound by the restrictions placed on them due to your IVA.
Hence, it’s extremely important that you contact your creditors in order to ensure that they don’t start pursuing action to make you bankrupt.
What Should I Tell My Creditors to Prevent them from Pursuing Legal Action Against Me Once My IVA Fails?
As I mentioned earlier, once your IVA fails, your creditors will be free to take legal action against you. Thus, it’s very important that you contact them as soon as you can and let them know what your next steps are going to be so that they don’t try to make you bankrupt.
Of course, for your creditor(s) to not pursue action to make you bankrupt, they need to have some confidence in your ability to take care of your debts. In order to assure them that you’re going to pay your debt back to them, you need to give them a plan of what your next step is going to be.
So, once your IVA fails, you’re going to have to start exploring alternative debt solutions and options immediately.
You can contact your IP and they may be able to get you in touch with a professional advisor who will discuss alternative options with you. I highly advise that you seek professional advice at this point and not make a decision on your own.
You can seek advice from a professional financial advisor that your IP may suggest to you or you can seek advice from other agencies as well. I highly advise you get help from independent charities such as Stepchange or Payplan. When seeking help regarding debt payments, it’s important that you only contact agencies that are authorised and regulated by the Financial Conduct Authority.
Once you have an idea of what you’re going to be doing next, you can get in touch with your creditor(s) and let them know so that they don’t try to make you bankrupt.
Maintaining contact with your creditor(s) when your IVA fails is extremely important. If you ignore them, then they are most certainly going to pursue legal action against you.
What are Some Other Debt Solutions I can Opt for if My IVA Fails?
Some other debt solutions that are available to you in the UK besides an IVA include:
Debt Management Plan (DMP)
A debt management plan is similar to an IVA in that you make monthly payments to your creditor(s) until your debt is paid off.
Unlike an IVA, in a DMP, you have to keep making monthly payments until all of your debts are completely paid off. No amount of debt is written off in a DMP.
Furthermore, unlike an IVA, a DMP is not a legally binding agreement.
A DMP also does not guarantee that your interest rates and charges will be frozen as an IVA does.
A DMP has no typical duration as an IVA does, it can last for a long time depending on how much money you owe.
Debt Relief Order (DRO)
A DRO is a much quicker solution for people that owe money they can’t afford to pay off.
That being said, the eligibility criteria for a DRO is quite strict which is why it’s not suitable for most people.
In order to qualify for a DRO, your total debt must be no more than £30,000 and you must have a spare monthly income of no more than £75. You must also have little to no assets to your name.
Once your DRO is in place, your payments are frozen for 12 months (known as the moratorium period). Once the moratorium period is over, your financial circumstances are assessed.
If it’s found that your financial circumstances still prevent you from paying off your debts, then your debts are completely written off.
However, if your financial circumstances have improved, then you will be obligated to pay off your debts.
While a DRO is a much quicker solution than an IVA, it’s only intended for individuals that have a (relatively) small amount of debt and are living in low-income households with little to no assets.
This is something that your creditor(s) may already be pursuing if you haven’t contacted them. While bankruptcy does result in all your debts being written off, it comes at the cost of your valuable assets (such as your house and car) being seized and sold off.
You can opt for bankruptcy yourself if you have no valuable assets which you want to protect.
Normally, when creditor(s) are attempting to make you bankrupt, they have to send you a warning letter known as a statutory demand. However, if your IVA fails, then a statutory demand is not necessary. They can ask the court to make you bankrupt immediately on account of the fact that your IVA has failed.
Thus, it’s very important to get in touch with every creditor you have immediately once your IVA fails.
Dealing with creditors after your IVA gets terminated can be an extremely unpleasant experience but it’s something that’s necessary if you want to avoid becoming bankrupt.
The important thing is to not panic and seek professional help immediately in order to plan your next step.