An IVA (Individual Voluntary Agreement) is ideal if you need to freeze interest and charges while you pay off what you owe to your creditors. But because it’s legally binding, there are rules you must follow in order to avoid the solution failing.
An IVA can fail for several reasons and have an impact on your finances, but it doesn’t mean it’s the end of the road. Learn more about why an IVA can fail, what happens when it does, and how to get back on track below.
How Does an IVA Fail?
An IVA is a legally binding debt solution, which means it can fail if you, or the people you owe money to, do not follow the rules set out in your proposal. This is known as an ‘IVA breach’, which can happen due to:
- Missed payments.
- Falling 3 months’ behind on payments without discussing your reasons with your IP (Insolvency Practitioner).
- Taking out further credit during your IVA.
- Not doing something your IP asks you to do, e.g. selling an asset you agreed to sell.
- Not paying in a percentage of any additional income you earn, or not paying in the money you make from selling your assets.
- Borrowing more than £500 without getting your IP’s permission first (this includes borrowing from family and friends).
- Not giving information for your annual review.
- Not declaring windfalls (e.g. inheritances, compensation pay-outs, lottery wins, etc.) to your IP.
After a breach, you’ll receive a ‘breach notice’ which tells you the rule(s) you’ve broken and how long you have to fix it. If you can’t resolve the issue, your IP will usually arrange a meeting with your creditors. But they can choose to cancel your IVA during this meeting if they wish.
If you are struggling with your IVA, or are at risk of breaching it, it’s best to contact your IP straightaway.
How Do I Get Back on Track After an IVA Breach?
If you’ve breached the rules of your IVA, we would recommend doing the following to get it back on track:
- Contact your IP, AND
- Provide the information needed for your annual review, OR
- Pay in additional income
If your circumstances change, and you cannot do either of the above, your IP can ask your creditors to:
- Vary your IVA (change the terms of the original agreement), AND
- Accept a change to what they originally agreed
You need to be careful during this time – if your circumstances change for the worse, or your income increases and you don’t declare it, you can end up breaking the terms of your IVA.
You must tell your IP about any changes, whether good or bad. Always go to them for advice on whether something is a breach or not.
What Happens After an IVA Fails?
If your IVA fails, your IP will usually send you a letter confirming that the solution has ended and provide a failure report, which shows how much your creditors have been paid during the time your IVA was active.
Your IP will inform your creditors and the Insolvency Service about the failure, but you will need to arrange another method of repayment yourself. Otherwise, you are no longer protected from debt collectors and your creditors may apply to make you bankrupt.
After three months, the IVA should be removed from the Insolvency Register, but it will still be marked on your credit file and will stay on record for six years from the date of approval, which will affect your credit score.
How Do I Get Back on Track After My IVA Fails?
If you’re feeling stuck after a failed IVA, don’t worry. There are other options out there to help you get back on track. We would always recommend getting debt advice first, but other solutions include:
- A Debt Management Plan (DMP): An informal and more flexible debt solution that involves our advisors working out a budget with you for your essential expenses, and using any leftover funds to pay your creditors.
- A Debt Relief Order (DRO): An insolvency procedure that lasts for one year and is for people who have only low-value assets or little to nothing to offer to their creditors. You can find a DRO advisor at https://www.moneyhelper.org.uk/en/money-troubles/dealing-with-debt/debt-advice-locator
- Bankruptcy: A formal insolvency procedure for people whose debts exceed their assets, or who cannot pay their debts when they are due. Angel Advance does not assist with this, you will have to apply online via gov.uk.
Do You Need Debt Help?
If your IVA has failed, or you’re simply seeking debt advice and support, our friendly team is here to help. We understand how difficult it is to take that first step, but all of our advice is completely confidential and we’re here to listen, not judge.
Please don’t hesitate to reach out and get free*, no-obligation debt advice from our professional advisors. If you need further support, we also offer a range of debt solutions which can help you find your feet again.
When you contact us for the first time, you don’t have to talk to us on the phone if you don’t want to. Our team is also available via email, WhatsApp or webchat. If you need advice quickly, we offer a free online debt advice tool which is available 24/7, and only takes 10-15 minutes to complete. Once you’ve added a few details about your finances (rough estimates are fine), it will give you a full picture of your situation and which solutions you might qualify for straightaway.
*Our advice is free, but if you sign up for a debt solution with us, fees will apply.
What Happens If My IVA Fails: FAQs
Always speak to your Insolvency Practitioner (IP) for support if your circumstances change during your IVA. You may be able to get a payment break to help you cover short-term emergency costs.
If your change in circumstances means you won’t be able to afford your IVA payment in the longer term, your IP may be able to arrange a variation of your IVA by contacting your lenders.
Yes, but only if you ask your IP in writing. You should be aware that if you do this, your creditors can add backdated interest and/or charges which you will need to pay on top of your outstanding balance.
Please note: It may take some time for the insolvency register and your credit file to be updated after the termination. An IVA will stay on your credit file for six years from the date it was approved.
