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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.


Comments 90

  1. Katie
    30.04.2019

    Hi, I’m currently in an iva and wanting to go bankrupt instead as I’m thinking of selling my house and the Iva company are wanting to charge fees and I’ve added 4K onto my 8k if debt, is bankruptcy a better option and after the fee will the accept a settlement once my house sells?

    1. 30.04.2019

      Hi Katie

      You need to be a careful here. If you sell your house while you are in an IVA your share of any equity you release is classed as a windfall. This must then be paid into the IVA. The IVA would only be settled if the money paid in equals the total of your original debt (less any payments already made) + The IVA Company’s fees + interest at 8% per year from the start date of the IVA. If there is not sufficient money from the equity to do this then your IVA payments would have to continue.

      Given this it is not normally sensible to sell a property during an IVA unless there is zero equity in it.

      As you are a home owner stopping your IVA and going bankrupt would not help you. If you were to go bankrupt and then sell your house, again 100% of your share of any equity released would have to be paid into the bankruptcy. The Official Receiver would not accept a settlement. They would expect 100% of the debt to be repaid. In addition they would also add on their fees which are likely to be at least £10,000

  2. vince
    12.02.2019

    Hi,

    Currently in an IVA, currently coming to my 1st anniversary. I currently pay 300 for child maintenance. However the EX wife has contacted CMS and now i’m ordered to pay £448 a month. MY IP are sending me new income and expenditure form to complete.

    I’m worried my IVA will be extended a further year. I rushed into an IVA as was explained to me so wonderfully. I rent my house and have no assets worth over 1000. So in hindsight bankruptcy probably would of been my better option.

    Bankruptcy was discussed however i chose not to basically because it sounded worse to hear!. I’m very worried about letting my IVA fail and starting bankruptcy process. WOuld it be sensible for me to do this??

    Thanks,

    1. 12.02.2019

      Hi Vince

      Your situation is actually pretty common. Your circumstances have changed during your IVA meaning you can no longer maintain the payments. Your IVA company may be able to reduce them but as you say that will come with a cost. If the reduction is agreed this will almost certainly go hand in hand with the Arrangement being extended for an additional 12 months.

      Given your circumstances bankruptcy is actually no worse than being in your IVA and will probably be a whole lot better for you.

      If you stop your IVA and go bankrupt you would not lose anything. Your landlord will not be told and as long as your car is not worth more than £1000 you will be able to keep it. Your credit rating will be effected in exactly the same way as an IVA (the record remains on your credit file for 6 years and then disappears). As such getting a mortgage in the future will be no more difficult.

      The clear advantage of bankruptcy for you is that it does not matter that your surplus income will fall. If your expenses are going up by £148/mth it stands to reason that your surplus must fall by the same amount. If this leaves you with no surplus you will not have to make any further payments towards your debts once bankrupt. If you still have a surplus the payments will only last 3 years compared to another 5 in your IVA.

      I recommend that you have a chat to your IVA company and see what deal can be struck regarding reducing your payments. However based on what you have said about your situation you could certainly decide to stop your IVA and go bankrupt and you would be much better off.

  3. Mark
    13.11.2018

    Hi. I have had an IVA for the past 6 months. Debt is 30K+. My wife and I will be moving abroad in March next year and I would like to apply for bankruptcy before moving. Is this a viable option? Is there a chance that they might refuse to make me bankrupt? Also, can I just ask my IP to fail my IVA without waiting for 3 months of no payments? Since we’re moving in March I’m afraid there won’t be enough time to apply for bankruptcy if I wait an extra 3 months. Thanks.

    1. 21.11.2018

      Hi Mark

      You can stop paying into your IVA and then go bankrupt at any time. As discussed above you simply stop your IVA payments and inform your IVA company that you want them to terminate the agreement. You can then apply to go bankrupt straight away. You do not have to wait for your IP to terminate the Arrangement. Given you qualify your application will not be refused.

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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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