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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 88

  1. Barrie
    21.03.2022

    My stepson is struggling to pay a IVA and wants to go bankrupt. Will the IVA people declare him bankrupt if he does’t pay or should he file for bankruptcy himself?

    1. 22.03.2022

      Hi Barrie

      The situation your stepson finds himself in is quite common at the moment. The rising cost of living is meaning that a lot of people are struggling to maintain their IVAs. If he is not a home owner, cancelling the arrangement and going bankrupt is likely to be a sensible option.

      When he stops paying his IVA, the IVA company will not make him bankrupt. Actually they can’t do this. They would only do so on authority from the creditors. Unless it has been written into his IVA that it must happen, then they certainly will not give this authority. They would prefer him to set up an alternative payment solution such as a debt management plan so they have a chance of getting their money back.

      So he will have to apply for bankruptcy himself. If he would like to discuss this and the implications, I would be happy to have a chat with him. I can be reached on 0800 044 3194. The advice is free and confidential. In the mean time, there is more information about how to go bankrupt here: The steps to go bankrupt

  2. Colin
    21.03.2022

    Hi, I am in an IVA but I can no longer afford the payment due to the reduction of £20 a week in Universal Credit and the rise in the cost of living. would you recommend defaulting on the IVA and making myself bankrupt.

    1. 21.03.2022

      Hi Colin

      If you’re struggling to maintain your IVA payments and you are not a home owner (or you are but you have zero equity), the answer is yes. I would definitely consider cancelling your IVA and going bankrupt.

      The advantage is if you no longer have any surplus income, you will not have to make further payments towards your debts. The process will be completed in 12 months and you will be debt free.

      Before you go ahead. I would recommend that you give me a call (0800 044 3194). I would be happy to speak to you to confirm that it is the right solution and the potential implications for you. The advice is free and confidential.

  3. Daniel anything
    17.02.2022

    Hi how does going bankrupt work if I cancel my iva how much do I pay to go bankrupt and do I have to continuously pay towards going bankrupt? Will they check my wages and take a percentage or anything?

    1. 18.02.2022

      Hi Daniel

      The cost of bankruptcy per person is £680.

      Regarding ongoing payments towards your debts: As part of the application you have to give detailed information about your household income and living expenses budget. If you have zero surplus income (nothing left after all your legitimate living expenses are accounted for) then you will not have to make further monthly payments. If you do have a surplus, this amount has to be paid towards your debts for 3 years. It is possible that the official receiver will ask for wage slips to check the amount you earn.

      You can read more about this here: Debt payments during bankruptcy

      If you want to have a chat about the option of cancelling your IVA and going bankrupt, please give me a call (0800 044 3194). This is free, confidential and without obligation. I can talk you through the pros and cons for you so you can make a sensible decision about what is best for you to do.

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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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