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 risks.
And, one such risk that you might face is 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 IVA exactly is and how it works. And, what are the consequences breaching IVA.
What exactly is an IVA?
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.
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 an IVA Breach?
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 breaching IVA, after getting a mortgage.
What Happens if You Breach 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 IVA gets terminated from that point. And, you won’t be under any protection clause, that can make you debt-free.