When someone in an IVA is no longer able, or perhaps willing, to adhere to the payment schedule laid out in their IVA proposal, they face the prospects of breaching the terms of their IVA.
After a sufficient number of missed payments, and without the likelihood of the breach being rectified to the satisfaction of the Insolvency Practitioner, the IVA will then be deemed to have failed.
When this happens the Insolvency Practitioner will write to the debtor, and all the creditors bound by the IVA, to inform them that the IVA has failed.
They will send a 'Letter of Termination' and a 'Failure Report' to the debtor, detailing the financial aspects of the failed IVA.
The Failure Report will include:
From this point on the debtor is no longer under the legal protection of the IVA and their debts are no longer under the supervision of the Insolvency Practitioner.
The debtor becomes liable for the outstanding balances left unpaid by the IVA and responsible, once again, for liaising directly with their creditors or their representatives.
As part of their IVA termination duties, the Insolvency Practitioner will distribute any remaining IVA funds, giving priority their own fees. This has the effect of reducing the amount being paid back to the creditors.
If an IVA fails within its first 12 months, it is possible that the outstanding balances could be as high as the original debts, with all the IVA contributions being drawn by the Insolvency Practitioner to cover their fees and costs.
In the majority of circumstances the Insolvency Practitioner will notify the creditors that the IVA has failed and take no further action, but in some circumstances there may be a clause within the IVA proposal stipulating the actions the Insolvency Practitioner is obliged to carry out in the event of a failure. This could include an instruction to petition for the debtor's bankruptcy.
Assuming that the debtor is not to be made bankrupt, they have options available to them, each worthy of serious consideration.
Options available are:
Which of these options will prove to be in the best interests of the individual will be determined in some part by what caused the original IVA to fail, and consideration should be taken of all surrounding circumstances.
For many people the failure of their IVA will be beyond their control but, wherever possible, every effort should be made to avoid failing an IVA.
It is worth pointing out there are ways in which an Insolvency Practitioner can assist someone struggling to maintaining their IVA payments. They can, at their sole discretion, reduce the size of the IVA payments or even offer a temporary 'payment break'.
So, it is crucial to keep good lines of communication open with your Insolvency Practitioner as tis will give your IVA the best chance of a successful outcome.
If your IVA has recently failed and you would like to discuss your options with on of our IVA advisers just call our IVA helpline on 0800 856 8569