An Individual Voluntary Arrangement (IVA) is a structured and legally binding agreement
between you and your creditors to repay a portion of your unsecured debts over a set period,
typically five or six years. While an IVA can be a lifeline for those struggling with
unmanageable debts, it requires strict adherence to the agreed repayment terms.
But what happens if you default on an IVA? Missing payments or failing to comply with the
terms of your IVA can have serious legal and financial consequences. In this blog, we’ll
explore what constitutes an IVA default, the steps your Insolvency Practitioner (IP)/ debt advisor may take,
and how it can impact your financial future.
What Does It Mean to Default on an IVA?
Defaulting on an IVA occurs when you fail to meet the obligations set out in your IVA
agreement. This can include:
Missing one or more monthly payments.
Failing to cooperate with your debt advisor.
Not disclosing changes to your financial circumstances, such as a pay increase or
receiving a lump sum of money.
Each IVA agreement specifies what counts as a breach, so it’s essential to understand the
terms outlined in your proposal.
Common Reasons for IVA Defaults
While every situation is unique, the most common reasons for IVA defaults include:
1. Financial Difficulties
Unexpected events such as job loss, reduced income, or increased living costs can make it
difficult to keep up with IVA payments.
2. Lack of Communication
Failing to inform your Insolvency Practitioner of changes in your circumstances can lead to
misunderstandings and default notices.
3. Poor Budget Management
An IVA requires careful budgeting. Overspending or failing to account for necessary
expenses can result in missed payments.
4. Major Life Changes
Life events such as illness, divorce, or relocation can disrupt your ability to meet IVA
commitments.
What Happens If You Default on an IVA?
If you default on your IVA, several steps may follow:
1. Initial Contact from Your Insolvency Practitioner/ Debt Advisors
Your Insolvency Practitioner / debt advisor will typically reach out to discuss the missed payment or
breach. They will:
Attempt to understand your situation.
Explore potential solutions, such as a payment break or adjustment to your repayment
plan.
Tip: Communicating openly and promptly with your debt advisor can prevent the situation from
escalating.
2. Issuance of a Breach Notice
If the default is not resolved, your debt advisor may issue a breach notice, outlining:
The nature of the default.
Steps you need to take to rectify the issue (e.g., catching up on missed payments).
A deadline for compliance, usually within 30 days.
3. Creditors May Be Consulted
If the default cannot be resolved, your debt advisor may consult your creditors to decide the next steps.
Creditors might agree to:
Amend the IVA: Adjust the terms to reflect your new circumstances.
Terminate the IVA: If no resolution is reached, the IVA may fail.
4. Termination of the IVA
If your IVA is terminated, the legal protections it provides will end. This means:
Creditors can resume chasing you for repayment, including adding interest and fees.
You could face legal action, such as County Court Judgments (CCJs) or bankruptcy
petitions.
You will still be responsible for repaying the full amount of your remaining debts.
Legal and Financial Implications of IVA Default
1. Loss of Legal Protection
One of the primary benefits of an IVA is legal protection from creditor actions. If your IVA
fails, creditors regain the right to:
Contact you directly.
Demand immediate repayment.
Take legal action to recover debts.
2. Potential Bankruptcy
If your IVA fails and you’re unable to reach an alternative arrangement with your creditors,
they may petition for your bankruptcy. Bankruptcy can have far-reaching consequences,
including:
Losing control of your assets.
Restrictions on certain types of employment.
A lasting impact on your credit score.
3. Damage to Your Credit Score
An IVA already affects your credit score for six years from the start date. However, defaulting
on the IVA can further damage your creditworthiness, making it even harder to secure credit
in the future.
4. Strain on Finances and Well-Being
Defaulting on an IVA can lead to increased stress and financial uncertainty. The return of
creditor pressure and potential legal actions can feel overwhelming.
What Can You Do If You Default on an IVA?
1. Communicate with Your Insolvency Practitioner
Your first step should always be to contact your IP. They can help you explore solutions such
as:
Payment Breaks: Temporary suspension of payments to help you recover financially.
IVA Variation: Adjusting the terms of your IVA to reflect your new circumstances.
2. Assess Your Budget
Take a close look at your income and expenses to identify areas where you can cut costs and
free up funds for your IVA payments.
3. Consider Additional Income Streams
If possible, explore ways to increase your income, such as taking on extra work or selling
non-essential assets.
4. Seek Professional Advice
If your IVA is at risk of failing, seek guidance from debt advice charities or professionals
who can help you evaluate your options, such as bankruptcy or a Debt Relief Order (DRO).
How to Avoid IVA Default
1. Be Honest About Your Finances
When setting up your IVA, provide accurate and complete information about your income,
expenses, and debts.
2. Build an Emergency Fund
Setting aside even a small amount each month can help you cover unexpected expenses
without jeopardising your IVA payments.
3. Inform Your IP of Changes Immediately
Whether it’s a change in income, unexpected expenses, or life events, keeping your IP
informed can prevent defaults.
4. Stick to a Realistic Budget
A well-planned budget is essential for staying on track with your IVA payments.
Why Choose Us for Your IVA?
We understand that life is unpredictable, and managing debt can be overwhelming. We’re
here to support you through every step of the IVA process, including if challenges arise.
Tailored Solutions: We design IVAs that reflect your individual circumstances.
Dedicated Support: Our team will guide you through any difficulties and explore all
possible solutions.
Transparent Communication: You’ll always know your options and obligations.
If you’re considering an IVA or struggling with an existing one, we’re here to help.
Final Thoughts
Defaulting on an IVA can have serious legal and financial consequences, but it doesn’t have
to be the end of your journey to debt freedom. By staying proactive, communicating with
your Insolvency Practitioner/ debt advisor, and seeking the right support, you can overcome challenges and
regain control of your finances.
Ready to take control of your debts? Contact us today for a free consultation and let us
help you find the best solution for your financial future.