Unhappy with my IVA can I go Bankrupt?
- 24 Dec 2021
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:
- 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 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.
I am currently on iva but need to apply for bankrupcy. I understand there is a fee for this?
I have been diagnosed with arthritus in all my joints and currently only receiving ssp after having been signed off. I have no means of paying this fee. What can i do?
Hi Debs
If your debt is less than £20k then rather than applying for bankruptcy you might qualify for a Debt Relief Order (DRO). This would give you the same outcome as bankruptcy but costs just £90 to implement. If your debt is greater than £20k or you do not qualify for a DRO for another reason then bankruptcy would be the next best option. There are various charitable trusts which might be able to help you pay the fee.
Hi, I currently have an IVA that I can afford to make payments. I have recently moved so my IVA company gave me a break on payment for 3 months. My living situation will be changing in 3 months and I now have to move again. The problem is my rent will be much higher in my new place as will be living alone – therefore I won’t be able to afford payments. Is this grounds to go bankrupt? I feel an IVA just doesn’t work for me, I have not kept up with payments on my IVA when I go over the threshold (when you have to pay 50% of overtime pay etc) so I know the debt will just be extended even further than the 5 years. I rushed into an IVA as felt bankruptcy would effect me more at the time but now feel it was the better option.
Any advise would be great, thank you
Hi Baz
If you are renting and your car is worth £1000 or less then generally speaking there is no advantage to you being in an IVA compared to Bankruptcy. As such if your expenses have now increased and you are going to find it more difficult to continue paying your IVA failing the Arrangement and going bankrupt is a sensible option to consider.
Remember if you go bankrupt you will have to give information about your new income and living expenses budget. If based on the changes you have some disposable income you will still have to pay this towards your debts. However the payments will only last 3 years. If you have no surplus income you will not have to make any further payments.
Hi,
I’m currently in an IVA, 1 year out of 5. I can quite easily afford my repayments right now, but this is because of my self-employed job role; where I haven’t collected for Tax Return as of yet. I feel when I do my self-assessment my tax bill will be high and the IVA unhappy that my income is potentially higher than originally thought.
I would like to go bankrupt to cancel the IVA and clear the Debt I owe; so I can continue working and build a better credit file to eventually purchase property. Can I do this, or will I be faulted for not accurately disclosing income (which is impossible to forecast earnings on self employment accurately.)
Hi Chris
From what you have said I understand that you can afford your IVA payments but only because you are not putting anything aside to pay your tax bill. Is this correct? If so then your IVA is not set up correctly. Your monthly IVA payment should be calculated after you have correctly provisioned for tax. If this is not happening then at the end of the year you will have a new debt in the form of a tax bill. If this is large it is unlikely you will be able to add it to your IVA and the whole arrangement is likely to fail.
If this is the case and you are expecting a tax bill then allowing your IVA to fail and then going bankrupt might be a sensible solution for you. You are certainly allowed to do this and the new tax bill would be included in your bankruptcy.
However be advised that bankruptcy will also have a negative affect on your credit file. Just like with an IVA the record of bankruptcy remains on your credit file for 6 years and will make getting credit difficult during this time. It means you are unlikely to be able to get a mortgage to buy a house for at least 6 years from the date of your bankruptcy.
In addition you will be asked to give details of your income and living expenses. If you have surplus income then this will have to be paid towards your debt for 3 years. As such it will be critical to get your figures right. Given you are self employed you need to base your income on your average drawings after provision for tax. I recommend that you base your average over the last 6-12 months depending on your business. If you need more advice on this please contact us.