What Happens if I Stop Paying My IVA? Missing Payments
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A lot of discipline and planning goes into running an Individual Voluntary Arrangement (IVA) smoothly.
There’s definitely a chance for you to fail to make your payments due to unexpected expenses or unforeseen circumstances.
In such cases, your IVA could fail. Today, I’m looking at what will happen if you stop making monthly payments towards your IVA.
If you fail to make your payment on the agreed-upon date, then you should contact your IP to inform them why you missed it.
Ask them if you can make the payment late. Your Insolvency Practitioner (IP) may accept your late payment if you have a justified reason for paying late.
If you miss your payment without informing your IP, then he/she will send you a notice of breach. It will ask you to explain why you didn’t make your payment and ask you to pay it.
It’s important that you make this payment as soon as you can. Most IVAs allow you up to three months for you to respond to the notice of breach. Your IP will not take any action against you if you make the payment within three months.
If you fail to make the payment within three months, then your IP may take further action depending on your circumstances.
If you have discussed your situation with them, then they may change the terms of your IVA in order to lower the amount you pay each month.
If you have not been communicative with your IP and have not responded to the notice of breach, then your IP will most likely end your IVA and send you an IVA termination certificate.
What Will Happen if I Fail to Make a Monthly IVA Payment?
Whether you’re regularly struggling to make your IVA monthly contributions or if you have just missed a single payment, it’s important to get in touch with your IP straight away.
They will be able to help you with your payments no matter if you’re short-term or long-term difficulties.
It’s extremely important that you communicate your circumstances with your IP because if you don’t do so and keep missing payments, then your IVA is bound to fail.
If you’re experiencing some sort of financial difficulty that isn’t permanent, you can discuss this with your IP and they may be able to get you a temporary payment break.
This emergency could be anything such as your car breaking down or your monthly income decreasing, etc.
Please note that in order to receive a payment break, your IVA has to have been made under the IVA protocol.
If your IVA was not made under the IVA protocol, then you’ll have to check the terms of your IVA to see if it accommodates you lowering your IVA payments in case your financial circumstances change.
Please note that you will have to provide evidence and documentation as to why you’re having trouble with your IVA payments to your IP. Only then will they be responsive towards helping you out.
Evidence could be in the form of bank statements, letter or the receipt to an emergency purchase that you may have had to make.
Please note that the duration of your IVA will be extended depending on how long your payment break is. Of course, this is to accommodate the payments you will miss due to your payment break.
How long of a payment break you can get depends on when your IVA was registered.
If it was set up before the 1st of July 2012, then the maximum length of your payment break can be 6 months.
If it was set up between the 1st of July 2012 and the 31st of December 2016, then the maximum length of your payment break can be 9 months. You’ll be able to get 6 months straight away and you can choose to have the remaining 3 months in conjunction with the initial 6 months or later on if you need them.
If it was set up after the 1st of January 2016, then the maximum length of your payment break can be 9 months.
If you require a longer payment break or need an extra payment break later on in your IVA, you’ll have to talk to your IP. They may be able to arrange something for you but they will have to get permission from your creditors.
If your financial circumstances have worsened and are unlikely to improve any time soon, then you’ll have to your IP about it.
They may be able to help you by changing how much you pay in your monthly payments towards your IVA.
What sort of help you will be provided depends on whether your IVA was registered under the IVA protocol or not. IVAs are mostly made under the IVA protocol but if you’re unsure of this, you can ask your IP about it.
It’s important to note that if your payments do get reduced, then the duration of your IVA may increase.
If your IVA was made under the IVA protocol, then your IP has the right to reduce your monthly IVA payments by up to 15% without having to seek permission from your creditors.
If you’d like to reduce your payments by more than 15%, then your IP is going to have to seek permission from your creditors. Your creditors may charge you a fee for this or they may not agree to it entirely.
If your creditors don’t agree to lower your payments and you can’t afford them, then your IVA fails.
In this case, you’re going to have to find another to take care of your debt.
If your IVA was not made under the protocol, you’ll have to look at the paperwork to see if it says that you can make changes to your IVA payments if your financial circumstances change.
If it does mention something like that, you can talk to your IP about it and they will be able to negotiate with your creditors to set something up for you.
If it does not contain anything of the sort and you can’t afford to keep paying money to your IVA, then it will make your IVA fail.
In this case, you’re going to have to find another way to pay back the money you owe.
What Happens After a Failed IVA?
If you fail your IVA, then your IP would send you a letter of termination along with a failure report.
The failure report will give you information on how much money has been paid to your creditors and how much money is left to pay. You can use this as a guideline to determine what you should do to take care of your debt moving forward.
Your IP will also inform your creditors that your IVA has been terminated. So, you’re going to have to communicate with them on your own in order to make sure they don’t pursue legal action against you.
Remember that you will no longer be protected by your IVA so you’re going to have to be communicative with your creditors in order to stop them from attempting to make you bankrupt.
Your IVA will also be marked as “failed” on your credit report.
Please note that you may still have to pay some fees that are related to your IP regardless of the fact that your IVA has failed.
My IVA Failed. What Should I Do Now?
An IVA failing can be quite demoralising but it’s important that you don’t panic. If you owe money to several different people, it’s important to keep them all informed and assure them that you’re pursuing other avenues of paying off your debt.
I’d advise you to seek debt advice from a professional. Contacting an independent debt charity such as StepChange or Payplan is a good idea. Make sure that whatever agency you seek advice from is authorised and regulated by the Financial Conduct Authority (FCA).
They have trained professionals who will go over your financial situation and suggest the most appropriate options on how to move forward.
There are a number of other different debt solutions besides an IVA which you can opt for.
A couple of them include:
- A debt management plan (DMP). This does not guarantee that your interest rates and charges will be frozen as an IVA does but it will still enable you to pay off your debt over time in affordable chunks each month. If you stick to your debt management plan well, then you may be able to convince your creditors to enter into another IVA with you somewhere in the future.
- Bankruptcy. Once your IVA fails, your IP and/or creditor(s) will most likely be looking to make you bankrupt. While this may seem like a bad thing, it can actually be a good solution depending on your circumstances. Bankruptcy allows you to completely write off your debt. However, your assets are not protected. They will be seized and sold off. So, if you don’t have a lot of assets such as a house or a car, then bankruptcy may be an option worth considering.
IVAs can be a very flexible way of paying off your debt but it’s important to handle your budget responsibly to ensure you make your monthly payment on time.
If you stop paying your IVA without any justifiable reason, your IVA will most likely fail.
I hope you found this information useful. Let me know if you have any further questions.