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.
Jump to article contents:
- Should you cancel your IVA and go Bankrupt?
- How to stop the Arrangement
- What happens to money already paid into your IVA?
- Will your creditors make you bankrupt?
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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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