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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 your IVA is not right for you or you simply cannot 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 with equity your property might be at risk if you go bankrupt. Before deciding on this course of action you should speak to one of our experts.

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 it is very unlikely to happen.

If a creditor makes you bankrupt they will probably not recover the money you owe them. Any money you are able to pay is likely to be taken by the Official Receiver in fees. Therefore most creditors will try to enforce payment using a debt collector and/or an Attachment of Earnings or Charging Order.

It is unusual for a banking creditor to petition for your bankruptcy. This is because it is unlikely to result in them getting back the money they are owed. As such it simply does not make commercial sense.

The only creditors likely to make you Bankrupt are HMRC or an individual you owe money to. This action is not taken to recover their debt. HMRC want to prevent the tax debts from getting worse. An individual simply wants to make life difficult for you.

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44 thoughts on “Unhappy with my IVA can I go Bankrupt?

  1. Sue says:

    If I stop paying my IVA and use that to save for the fee which would take 3 months, how soon would creditors come after me without the protection of the IVA?

    1. Hi Sue

      If you stop paying your IVA company cannot officially terminate until you are 3 months in arrears. As such it will be a minimum of 3 months before your creditors are made aware that you no longer have your IVA. That said many IVA companies can take up to 6 months or more to get round to formally terminating the agreement.

      Therefore you have no need to worry. You will have plenty of time to save your up your bankruptcy fee without fear of getting hassle from your creditors.

      As a slight aside you do not have to wait for your old IVA company to issue you with your termination letter. You can submit your bankruptcy application any time as soon as you have saved the necessary fee. Once you are bankrupt the official receiver will communicate with your IVA company.

  2. Amanda says:

    Hi I have an Iva however I do not now think that it is for me I have been bankrupt before in 2006 but I was told that I could not go bankrupt again can you tell me if this is correct and if not how much dose it cost to make myself bankrupt and do I have to pay it all straight away

    1. Hi Amanda

      What you have been told is not correct. You can certainly go bankrupt for a 2nd time if you wish. I have worked with a number of people who have done that. The fact that it is over 10 year ago since the last time you went bankrupt means you will not even have to mention it on your new application.

      The cost to make yourself bankrupt is now £680. You can pay this amount in instalments but you cannot submit your application until it is paid in full. The application process has changed as well since you last went bankrupt. It is now done on line.

  3. S Berry says:

    Hi, My husband and I are with Vanguard (via Faith Financial). When we started in Feb 18 the payments were £387 as I was on statutory maternity pay. I am now back at work and the payments have increased to £587.

    I am now pregnant with my 2nd child. I told Vanguard that the payments will need to be reduced and after filling in an income and expenditure form they have said they can reduce them to £569! I have asked where they are getting this from as I will be back on maternity pay and we were on £387 before and now will have 2 children to provide for but the payments remain much bigger than before.

    I am considering going bankrupt as myself and my husband do not own our own home, we privately rent and I own a £400 car and no other assets of any financial value. However my husband is a share holder in his Company, we looked at selling his shares but they are only worth £1 on paper, but we get a monthly income which helps us of £750 a month extra as dividends. He is worried that going bankrupt will affect the business – is this true? This would be our only set back to going bankrupt so any advice would be much appreciated.

    1. Hi

      The fact that your husband owns shares and receives regular dividends from these would be a problem if he went bankrupt. The Official Receiver (OR) would take over the interest in the shares (as they are one of his assets) and any future dividends would have to be paid to them. This could only be stopped if your husband subsequently bought back his interest in the shares. Calculating a fair price for this could be tricky.

      That said the way forward for you both will depend on how much of the total debt in the IVA you both owe. If you owe more than your husband then stopping the IVA might still be an option. You could go bankrupt to write off your share of the debt. This would not affect his shares or dividend payments. He could then repay his outstanding debt using a debt management plan.

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