What happens if I don’t keep up the payments on my IVA?
October 30, 2018
IVAs can be very effective in dealing with serious debt as they use your surplus income to pay creditors an affordable amount each month. A degree of flexibility is also built into the procedure that, under the right circumstances, allows your insolvency practitioner (IP) to amend monthly payments should your income fall or you receive an unexpected bill.
This is a crucial aspect considering the term of an IVA is generally five or six years. So what happens in practice if you don’t keep up your IVA payments?
When you fail to pay your IVA
As soon as you know you won’t be able to pay, you should contact your IP so they can take steps to prevent its complete failure. You’ll need to explain why you haven’t paid – maybe your employer has paid you late, for example, or there’s been a problem processing your wages at the bank.
If there’s a good reason for the delayed payment it may be accepted by the insolvency practitioner, but you’ll still receive a notice of breach. This requires you to formally explain why the payment date was missed, and officially requests that you make up the payment within three months.
Payment breaks and IVA extensions
If your IVA commenced on or after 1st January 2016, you may be eligible for a payment break of up to nine months if your insolvency practitioner is satisfied with your reasons for non-payment. The arrangement may also be extended by up to 12 months to collect the missed payments.
Different rules apply to IVAs taken out prior to 2016:
- 1st July 2012 to 31st December 2016: payment break of up to nine months in total are allowable – six months immediately, with an extra three months either being taken straight away or later on in the term if necessary
- Prior to 1st July 2012: payment break of up to six months
Varying the IVA terms
Although IPs have some discretion to vary payments and offer payment breaks, if a significant change to the IVA is being proposed, the consent of creditors is required. A Variation Meeting is held to this end, with 75% (by value of debt) of creditors needed to vote in favour for the variation to go through.
It may be in your creditors’ interests to accept the variation, as they could still receive more in the way of returns than if they forced you into bankruptcy. If the variation isn’t voted through, however, the IP may need to declare that the IVA has failed.
If you don’t keep up the payments on your IVA and the supervisor is unable to prevent its failure, they will send you a certificate of termination. Creditors are then free to resume the application of fees, charges and interest to their debts, and they or your IP could force you into bankruptcy. So what are other likely repercussions of IVA failure?
Although you’ve reduced your debts to some degree, you’ll become liable for the IP’s professional fees up until the point of failure. Under normal circumstances your creditors would have to send you a statutory demand for payment prior to making you bankrupt, but because the IVA has failed they can take legal action against you straight away.
You may be able to avert this if you contact each creditor individually as soon as you know the IVA has failed, and try to negotiate a new payment plan. Again, if their returns are likely to be higher than via bankruptcy, they may be willing to agree your proposal.
If you would like more information on IVAs and the consequences of non-payment, please call one of our licensed insolvency practitioners to arrange a free same-day meeting. We can explain all your options, and help you decide on the best course of action.
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