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What are the Negative Impacts of Breaching an IVA?

Breaching an IVA

An IVA offers debt-ridden people, heading towards bankruptcy, a way out, from their present situation. It allows debtors to pay their debts in instalments, and the amount is decided as such, that they can afford to pay. There are numerous benefits that an IVA offers you. But in addition to that, it also comes with various potential consequences breaching iva risks. 

And, one such risk that you might face consequences of an iva that of the arrangement getting cancelled. Now, this could happen due to several reasons. The most commonly reported one is the failure to pay an instalment on time. 

But, the good news is that IVAs getting cancelled is not at all a common occurrence. Though having a complete idea about this matter would indeed be helpful, in case you’re getting an IVA. Thus, at first, you must know what an consequences breaching IVA exactly is and how it works. And, what are the consequences breaching IVA.

What is exactly an IVA breach?

An IVA (Individual Voluntary Agreement) is an agreement between one debtor and multiple creditors. It must be noted here that you can get an IVA only if you owe at least two creditors. In addition to that, your total debt must amount to a minimum sum of £10,000. This arrangement is legal and accepted by the court. So, you need to hire a certified accountant or lawyer who works as an Insolvency Practitioner. Further, you can also join with any reputable private firm, who can offer the requisite assistance. In this post, I’ll be discussing what the consequences of breaching your breach of IVA are and what you should be doing in case this happens.

Your IVA won’t fail instantly if you do break the terms of your proposal. You’ll be issued with a breach notice, which lets you know how you’ve broken the terms and what you can do to put it right. A breach notice can be issued for not doing what was agreed in your consequences of an iva proposal. This includes:

  • Missing payments or falling into the equivalent of three months’ arrears with your contributions
  • Not doing something the Supervisor of your breach of IVA reasonably asks you to do – for example, not selling an asset you agreed to sell
  • Not paying in a percentage of additional income that you’ve earned
  • Failing to pay any money you make from selling assets into your IVA
  • Borrowing more than £500 without the Supervisor’s permission. This includes borrowing money from family or friends
  • Not providing information needed for your annual review
  • Not declaring windfalls to the Supervisor (such as inheritances, compensation pay-outs, or lottery wins)

What Happens if an IVA Fails? 

An IVA is a formal and legally binding agreement for both you as well as your creditors.

It places a number of restrictions on your creditors as well as you and you have to stick by those restrictions throughout the entire duration of your IVA to ensure its success.

You have to abide by all of the rules detailed in the breach of IVA protocol as well as any specific terms that apply to your particular IVA which would have been stated within your IVA proposal.

If you happen to breach any of the terms detailed either within the IVA protocol and/or your IVA proposal, then this could lead to your IVA failing.

How does an IVA work?

Crafting a perfect repayment plan is a crucial part of an IVA, where you decide the amount to be repaid in every instalment. The amount would be decided based on whether you can afford to pay it. Additionally, you have to prepare a budget and stick to it. 

If you have any earning possibilities or savings, other than the budget fixed, you’ll have to contribute all of it, towards repaying your debt. You have to keep your spendings within the budget, as well. Also, you need approval from your practitioner, in order to get a mortgage higher than £500. The arrangement comes into effect only after the creditors agree to the terms. 

Once it is in effect, you have to stick to the terms and conditions laid out, let your practitioner deal with your creditors. Typically, an IVA agreement lasts for up to 6 years. 

What is meant by Consequences breaching IVA ?

Due to the prescribed rules associated with an IVA, its terms enjoy legal protection. This indicates that you’ll have to stick to the terms and also your creditors need to follow the policies. Violating a term or simply not sticking to it can be considered as a breach. 

There are quite a lot of terms that are breached by debtors. Here are some of the most common ones among them:

  • Failing to Pay an Instalment

You might often fail to pay an instalment due to various reasons. And, as we have seen, this is the most common cause that IVAs get terminated. The key to avoiding this situation is to carefully consider your financial condition, before choosing a repayment plan. And, in case you find yourself in this situation, you must communicate with your practitioner. Otherwise, your IVA would be at risk of getting cancelled.

  • Hiding Additional Incomes and Savings

One of the fundamental terms associated with is that your additional incomes and savings would be used as a contribution towards paying debts. However, most of the IVA applicants often breach this term. And, you are firmly discouraged from taking any step further. 

It is understandable that you need money, but breaching this term would simply be an unnecessary risk. Debtors often hide the information about the inheritance that they might have received during the agreement period. It would be better to use the money and contribute to your debt. That way, you’ll be debt-free sooner, than later, without any consequences breaching IVA.

  • Not Sticking to the Budget

As you know, you are required to strictly follow a budget during the agreement period. If you make any expenditure outside this budget, you’ll have to do so with the practitioner’s approval. If you proceed without the permission, it would put the arrangement at risk. Repeating this would surely get your IVA cancelled. 

  • Failure to Provide Information for Annual Review

During the period of the arrangement, you’ll have to produce information about your earnings and expenditure, annually. For example, bank statements and payslips are the most sought after documents. If you fail to provide these when requested, it would be considered as a breach. This might eventually result in the cancellation of the agreement and noted under consequences breaching IVA.

  • Refusing to do What your Practitioner Requests

Your practitioner might request you to do something that you might not agree with. For example, selling some of your assets to repay your debt. In such a case, your IVA stands at a risk of getting cancelled. Again, the best way to avoid this would be to have good communication with the practitioner. 

  • Getting a Mortgage without the Practitioner’s approval

During the IVA period, you can’t get a mortgage worth above £500 without written approval. You need to ask your IP whether your conditions permit or you are liable to proceed. Often, people ignore this fact, without thinking about the consequences breach of IVA, after getting a mortgage.

What Happens if You Breach of an IVA?

Consequences breaching IVA is not going to terminate the agreement right away. First, you’ll get a breach notice that would tell you how you can fix the breach. For example, if you hid your additional income, the notice will tell you to provide detailed information about it. 

It would also tell you the time within which you’ll have to fix the breach, let’s say 72 hours. If you fail or refuse to take the necessary steps, then the practitioner will have to place the sole option of cancelling the arrangement to the creditors. And, if they agree, your breach of IVA gets terminated from that point. And, you won’t be under any protection clause, that can make you debt-free.

Get help now By IVA advice Team

Get free, impartial debt advice online, so we can recommend the best solution for your situation.

For free, confidential help with individual voluntary arrangements, you can also speak to one of our expert IVA debt advisors. If you already have an IVA, you should always discuss your situation with your insolvency practitioner first.

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