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Unhappy with my IVA can I go Bankrupt?
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Unhappy with my IVA can I go Bankrupt?

Unhappy with my IVA can I go Bankrupt?

If you are unhappy with your IVA you can cancel it and go Bankrupt. Perhaps you have decided the IVA is not right for you or you can no longer afford the payments.

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Should you cancel your IVA and go Bankrupt?

There are different reasons why you might be unhappy with your IVA. Having considered your options more carefully since you started the Arrangement you may simply have decided it is not right for you.

Debt payments in an IVA will last for 5-6 years. In Bankruptcy they will last for 3 years. As such if you stop your IVA and go bankrupt within the first 2-3 years you might well save yourself a considerable amount.

Alternatively you may no longer be able to make reasonable payments towards your debts. If this is the case Bankruptcy could be ideal. Where you have no disposable income ongoing payments are not required.

If you are a homeowner your property might be at risk if you go bankrupt. Speak to us before deciding to cancel your IVA (0800 044 3194).

How to stop your IVA

An IVA is a legally binding agreement. However you can stop it and go Bankrupt at any time. The process is actually very simple. You just need to let the Arrangement fail.

To do this you simply stop making your monthly payments. You also need to inform your Insolvency Practitioner (IP) of your decision. They will normally ask you to confirm your instruction in writing (either by e-mail or letter).

Once you have stopped paying you can go bankrupt at any time. There is actually no need to wait for your IP to formally terminate your IVA. They will normally do this within 3-6 months but you can go bankrupt in the mean time if you wish.

Instead of paying into your IVA you can save the money towards your Bankruptcy fee. Your creditors will not start to chase you until your IVA is terminated.

What happens to money already paid into your IVA?

Depending on the level of your monthly payments and particularly if you stop paying within the first 12-24 months most of the money you have paid in will be taken in fees. This is quite normal and is agreed with your creditors up front.

This means that if you stop your Arrangement it is likely that most if not all of your debt will remain outstanding.

The amount you owe will only have reduced if you have been in the Arrangement for some time or your monthly payments were particularly large.

The fact that your debts may not have reduced during your IVA is not a problem. The outcome of your Bankruptcy is the same regardless of the amount you owe.

Will your creditors make you Bankrupt?

After you cancel your IVA you might consider simply waiting until one of your creditors makes you bankrupt. In this way you could avoid paying the application fee. However this is very unlikely to happen.

The only creditors who will ever consider making you Bankrupt are HMRC, a trade supplier (if you are self employed) or an individual you owe money to because they bear a grudge against you.

This is because nine times out of ten once you are bankrupt it is unlikely your creditors will recover the money you owe them. Any money you are able to pay is likely to be taken by the Official Receiver in fees. As such it simply doesn’t make commercial sense.

If you own money to normal banks and credit card companies it is very unlikely they will make you bankrupt. You will need to do it yourself.

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Comments 66

  1. jay
    14.06.2020

    I am currently on an iva and my debt is almost doubled due to iva fees.I have been on my iva 2 years now. My payments have doubled and im not happy. I am considering cancelling it however i have savings my question is am i able to transfer my saving to a family member before i apply for bankruptcy and if so can i tell the bankruptcy it was a famy debt as apposed to them saving it for me. I am just wondering weather this is possible to avoid losing any savings. I have savings that do not exceeds the debt or reach half.

    1. 15.06.2020

      Hi Jay

      The answer to your question will depend on how much you are talking about. Given you have been in an IVA for 2 years I assume you have not been able to save a huge amount. So if we are talking about no more than a £1000 or so you don’t have to worry. You can use this money to pay for your bankruptcy if you decide to go down this route.

      However if you have a greater amount of savings this is more of an issue. You can’t protect your savings by transferring to a family member before going bankrupt. This would be a preferential payment and the official receiver would demand the return of the funds.

      As such you can use some of the funds to pay for your bankruptcy (and some other things) but any remaining funds would be lost (handed to the OR). If you would like to discuss this in more detail and the options open to you please get in touch.

  2. Dave
    25.03.2020

    I’m reading a lot of comments about monthly payments after going bankrupt. What does this mean? I just thought you could pay the bankruptcy fee and then nothing else

    1. 25.03.2020

      Hi Dave

      Once you are bankrupt the Official Receiver will review your income and expenses budget. They are looking to see if you have any surplus income. This is the amount left over after you deduct all your reasonable living expenses from your income.

      If you have a surplus, you still have to pay this towards your debts for 3 years. It is known as an IPA (Income Payment Agreement).

      The payment you make into an IVA is calculated in the same way. However a big difference between the IVA and bankruptcy solutions is that bankruptcy does not rely on you being able to make a monthly payment. If you have no surplus you will not have to make any payments at all. As such where an IVA company may squeeze you to pay as much as possible this is generally not the case in bankruptcy.

      In my experience people who move from an IVA to bankruptcy end up paying a far smaller amount towards their debt each month. This is because the official receiver is generally more generous when it comes to living expenses allowances.

  3. Ross
    18.03.2020

    Hi James , I’m considering having to go bankrupt , I understood that once the 12 month period of bankruptcy was over all debts were wiped out! However I’m just reading on your website that the OR will continue to take any disposable income for up to 3 years … have I understood that correctly?

    1. 18.03.2020

      Hi Ross

      If you go bankrupt and have surplus income then yes, you will have to continue paying this amount towards your debts for 3 years. The Bankruptcy itself will still last 12 months but the payments which are based on a separate order continue.

      Note: This only happens if you have surplus income. Where you have no surplus, no ongoing payments will be required unless your income improves during the year.

  4. Joanne
    10.03.2020

    Hi I’m currently in an Iva and have been since 2017. I’ve just started maternity leave and considering if bankruptcy is the better option for me? I’m not a home owner but would like to own my own home in the future

    1. 10.03.2020

      Hi Joanne

      If your income has fallen as a result of your maternity leave or you feel you will struggle to maintain your IVA payments then stopping your IVA and going bankrupt might be a sensible option for you.

      In terms of buying a house in the future, bankruptcy will have no worse affect on you than an IVA. The record of both solutions stays on your credit file for the same length of time (6 years). After that the record comes off and you can get a mortgage.

      Remember, if you go bankrupt now the 6 year clock will start again. In other words you are unlikely to be able to get a mortgage for another 6 years. But if you are (or arle likely to be) struggling with your IVA payments bankruptcy is probably be a better solution. If you have little or no disposable income no further monthly payments would be required.

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ABOUT THE AUTHOR
James Falla
I have been advising people on how to solve their debt problems for over 20 years. During this time I have helped many people go bankrupt. I am an FCA Approved Person and the Managing Director of Wilmott Turner Financial Services (owner and operator of Bankruptcy Expert
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