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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.

Included in this article:

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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.


Comments 90

  1. Susan
    03.07.2018

    I am already in a IVA but even though I been in it for approximately 2yrs or more I am extremely unhappy with the service from the company I am with. Therefore I am wondering if I can go Bankrupt instead.

    In addition my only income is ESA and DLA so I will struggle to pay the bankruptcy fee. Is there anywhere I could get financial help to pay it?

    1. 03.07.2018

      Hi Susan

      If you are unhappy with your IVA there is nothing to stop you cancelling it and then going bankrupt. As highlighted in the article above you would need to stop your IVA payments and tell your IVA company that you want them to cancel the arrangement.

      As you mention if you want to apply for bankruptcy the problem that you (and many others face) is finding the money to pay the bankruptcy fee. Unfortunately there is no reduction in the fee if you are on benefits or a low income.

      One option for getting the fee together is to save the money you need. Bear in mind that you will not be paying your IVA so you could put this money towards the fee instead. Your creditors will not start chasing you normally for 3-6 months after your IVA is terminated so this should give you the time you need.

      In terms of getting financial help there are some utility companies and other organisations who do offer grants to fund bankruptcy in certain circumstances. You could also investigate these options.

  2. Tammie
    23.05.2018

    Hi

    If I was to let my iva fail with the intention of going bankrupt would the IP inform me of my outstanding debts to my creditors for filling in the bankruptcy application?

    Also in the 3 months waiting for my iva to fail would I be likely contacted by my creditors. I am two years in to my iva and for the last 12 months I keep reading online and thinking it was a poor choice against bankruptcy

    1. 23.05.2018

      Hi Tammy

      If your IVA fails you will get a letter from your IP confirming that it has been terminated. However they will not necessarily tell you what the outstanding debts to your creditors are. As highlighted in the article above it is possible that a considerable amount of the money you have paid into the arrangement will be taken in fees. As such the balances may not have gone down that much.

      Given this my advice is always to simply list the same balances in your bankruptcy application form as when you started your IVA. It is not actually a requirement to list 100% accurate balances when you complete the form. An estimate is perfectly acceptable. Whether the amounts you put down are under or over will make no difference to the outcome of the bankruptcy.

      In regard to your creditors contacting you while you are waiting for your IVA to fail you do not have to worry. They are not actually told that your IVA has failed until you get your terminantion letter. In fact even after you get this it is unlikely they would contact you for another 3 months as it takes some time for them to update their systems. Given this you have plenty of time to save up for the bankruptcy fee.

  3. Michelle
    20.02.2018

    I am currently in a iva for another 2 years I am struggling with the payments. I would like some advise on what I would loose etc if I declared myself bankrupt

    1. 20.02.2018

      Hi Michelle,

      What you might lose if you allow your IVA to fail and then go bankrupt depends very much on your personal circumstances. You need to consider 3 arears:

      First of all are you a home owner? If so then your property might be at risk. However if you live in rented accommodation this will not be affected at all as long as you maintain your rent payments.

      Secondly do you own a car? If so and it is worth more than £1000 you might have to sell it and get a cheaper one. If it is worth less than £1000 it is exempt from bankruptcy and you can keep it as long as you need it.

      Thirdly your personal possessions. Generally you will be able to keep all of your household belongings including your clothing, furniture and electrical goods including your laptop ipad and mobile phone. The only time any of your belongings might be at risk is if an individual item is worth more than £500 on the second hand market.

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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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