If your IVA has failed or you’re worried it might fail, it’s completely normal to feel anxious and unsure about what happens next. The important thing to know is that a failed IVA is not the end of the road. You still have options, and there are ways to move forward.
This guide explains why an IVA might fail, what happens when it does, and what you should do next.
Why Might an IVA Fail?
An IVA usually fails when the agreed terms can no longer be met. Some of the most common reasons include:
A Drop in Income
If your income falls because of redundancy, illness, reduced hours, or self-employed work slowing down, you may no longer be able to afford the monthly payments.
Rising Living Costs
Increases in rent, mortgage payments, energy bills, or other essential expenses can make an IVA that was once affordable become unmanageable.
Missed or Ongoing Arrears in Payments
Most IVAs allow for the occasional missed payment, but if payments are missed repeatedly or fall too far behind, the IVA can be breached and eventually fail.
Not Keeping to the Terms of the IVA
An IVA has rules, such as:
- Providing annual financial reviews
- Informing your provider about changes in circumstances
- Not taking out new credit without permission
Breaking these terms can also lead to failure.
Changes to Personal Circumstances
Life events such as separation, illness, or unexpected responsibilities can sometimes make it impossible to continue with the original agreement.
What Happens When an IVA Fails?
When an IVA fails, a few important things happen.
The Legal Protection Ends
One of the biggest benefits of an IVA is the legal protection it gives you from creditors. When it fails:
- Creditors can start chasing you again
- Interest and charges can be added back on
- Enforcement action can resume, including court action or bailiffs
Your Debts Are No Longer Controlled by the IVA
Any debts that were included in the IVA are no longer covered by it. You go back to owing those creditors, usually minus any payments already made.
Your IVA Provider Will Notify Creditors
Your insolvency practitioner will formally close the IVA and inform your creditors that it has failed.
Your Credit File Is Still Affected
Even though the IVA failed, the record of it will usually still remain on your credit file for six years from the start date.
What Happens to the Money I’ve Already Paid?
Any money you have paid into your IVA:
- Will have been used to cover fees and pay some of your creditors
- Is not refunded if the IVA fails
- Is taken into account when creditors calculate what you still owe
Although this can feel frustrating, it’s important to remember that you haven’t been paying for nothing — you have reduced your debts to some extent.
What Should I Do in Case of a Failed IVA?
If your IVA has failed, or you’ve been told it’s about to fail, the most important thing is not to panic. A failed IVA does not mean you’ve run out of options, and it does not mean you’re back to square one with no way forward.
The right solution depends on your current income, debts, and overall circumstances. Here are the main options that are usually considered after an IVA fails.
Consider a Debt Management Plan (DMP)
A Debt Management Plan is an informal arrangement where you make reduced monthly payments to your creditors based on what you can afford.
A DMP might be suitable if:
- Your income is lower than it used to be
- You no longer have enough spare money for an IVA
- You still want to repay something towards your debts
- You need a more flexible solution
With a DMP:
- Payments can go up or down if your circumstances change
- There is no fixed end date
- Creditors are not legally bound, but many will agree to freeze interest
- You are not tied into a long-term legal contract like an IVA
A DMP can be a good stepping stone if your finances are unstable or you need breathing space after your IVA has failed.
Check If You Qualify for a Debt Relief Order (DRO)
A Debt Relief Order is a formal debt solution designed for people with:
- Low income
- Little or no spare money each month
- Low levels of assets
- Relatively low total debt
A DRO might be suitable if:
- Your circumstances have worsened since the IVA started
- You now have very little or no disposable income
- You don’t own a home and don’t have valuable assets
With a DRO:
- You make no monthly payments
- Your debts are put on hold for 12 months
- If your situation doesn’t improve, the debts are written off at the end
For some people whose IVA failed because their income dropped, a DRO can be a much more appropriate and realistic solution.
Could Another IVA Be an Option?
In some situations, it may be possible to propose a new IVA, especially if:
- Your first IVA failed because it was set too high
- Your circumstances have now stabilised
- You still have some spare income available
However, creditors will look closely at why the first IVA failed, and the new one must be much more realistic and sustainable.
Get Advice Before Choosing
The most important step is to speak to a debt adviser at My Debt Plan who can:
- Look at your current situation, not your old one
- Explain which options you actually qualify for
- Help you choose a solution that you can realistically stick to
The worst thing you can do after a failed IVA is ignore the problem and wait for creditors to take action.
A failed IVA is upsetting, but it’s not a failure as a person and it’s not the end of your chances to sort out your debts.
The most important thing is not to panic and not to do nothing. There will always be another route forward, and with the right advice, you can find a solution that works for your current situation.
What should I do now?
If your IVA has failed or you’re worried it might fail, you don’t have to deal with it alone. My Debt Plan offers clear, impartial advice to help you understand your options and take back control of your finances.
You can get debt help online or speak to our friendly team for a confidential, no-obligation conversation. Call us today on 0161 464 0870 and start taking back control of your finances.
