What Happens at the End of an IVA
As we have explored elsewhere, an IVA can be a long and expensive route out of debt. Once the IVA has successfully completed, your remaining debt will be written off but you may still face problems when trying to get credit.
Make sure you know what happens when you finish paying your IVA an how you can end your IVA early if it is no longer working for you.
What happens when I finish paying my IVA?
If you follow all your IVAs demands for payment, then your IVA will be successfully completed, and your will be discharged from any remaining debt. This means that the outstanding balances will be written off and you will not need to make any further payment towards your debt.
Please keep in mind, that any debt which was not included in the IVA will not be written off. You will need to keep paying this.
Once your IVA has ended, your supervisor will issue you with a certificate of completion and, after three months, your name will be removed from the Insolvency Register. This does not necessarily mean that you will be able to get more credit immediately, your credit report will likely be damaged for some time, but you will not be insolvent anymore and will not need your supervisor’s permission to apply for future credit.
Don’t forget, that the monthly payment you make to your IVA will change each year and is likely to increase significantly over the course of the arrangement. Your IVA may also be extended so it is very difficult to know how long it will take to complete the IVA, or how much it will cost.
What happens if my IVA fails?
Around one in every four IVAs fails.
The term ‘fail’ refers to when the IVA is terminated before it has been completed. If you refuse, or are not able, to make the payments demanded of you, then the IVA is likely to fail. The number of IVAs which fail has increased dramatically over recent years.
This is a particularly worrying trend and points to serious failings by firms in the insolvency industry.
Your IVA may fail because you have not kept up with your monthly payments, you haven’t told your supervisor about any extra income you’ve received, you’ve borrowed more money without your supervisor’s permission, or you cannot re-mortgage your property.
Regardless of the reasons for termination, once the IVA fails, it cannot be reinstated, and you will need to make a payment arrangement with your creditors directly.
This is not a problem if you have found a better way to deal with, or challenge, this debt, but you may be daunted by the prospect of your creditors contacting you again.
Make sure you have specialist help and advice if you are thinking about terminating your IVA, it is a big decision with potentially serious consequences. But that does not mean that it isn’t your best option.
Under the terms of the standard IVA rules, if the terms of the IVA are broken, then the supervisor is required to call a meeting of your creditors to decide whether they should petition the court to make you bankrupt.
That may sound scary, but in practice, only a tiny number of IVA terminations will ever result in bankruptcy. This is because it is an expensive option for your creditors, and they are unlikely to recover much from you unless you have significant income and assets.
And in all honesty, if you have a low income and don’t own your own home, bankruptcy is likely to be a good option for you. (But do make sure you take professional advice if you are considering this route.)
Once your IVA has failed, you (or a company acting on your behalf) will still need to contact your creditors and come to some arrangement with them to pay what they say you owe. They may have received some payment from the IVA and your balance will be reduced as a result – but remember that the IVA company will have charged high fees, particularly in the first few years of the IVA, and you may find that you still owe most, if not all, of the debt.
How to end an IVA
Under the standard IVA terms, you can also ask for the IVA to end terminated if you no longer feel like this arrangement is working for you.
You may want specialist help to exercise your right to terminate, but you can do this yourself just by writing to your supervisor and making it clear that you want to end the arrangement. You do not need to explain why you want to terminate the IVA. They should refer to your creditors without delay and revert to you within 28 days.
In our experience, most IVA companies make the terminate process feel very difficult, but in reality, it is very simple. If you’re told the IVA is an agreement “can’t be broken” that is quite simply nonsense – all agreements which you can enter can be broken.
If you chose to end your IVA, you will no longer need to make payments to the arrangement, but you will not be protected against your creditors. They will likely start writing to you again and asking that you contact them to pay what you owe.
You do not need to make any further payment to your IVA supervisor once the IVA has terminated.
You may feel like you were not treated fairly during your IVA, or even that your IVA was mis-sold to you. Unfortunately, you will not receive a refund of any fees which have been paid to the IVA supervisor even if you chose to end the IVA early.
If you would like to know more about IVA mis-selling and making a complaint against your supervisor, we would be happy to speak with you. Be aware that any claim you make may not be successful and even if it is, it may not result in a cash payment to you. You may need specialist advice to make a complaint about your IVA company.
You have several options open to you once your IVA has ended: you may want to consider an alternative insolvency solution, such as bankruptcy or a debt relief order – both of which mean your debt will be written off after just one year. You can start bankruptcy or a debt relief order after your IVA has failed.
Alternatively, you could contact your creditors and set up a debt management plan, with small monthly payments to each creditor. You could also do this with the help of a debt charity such as Step Change.
Remember that you should never pay any debt company unless and until you are satisfied that you owe this money to them. If you haven’t already challenged your creditors, the failure of an IVA can be a great time to do this.
Can I settle my IVA early?
You can ask to settle your IVA early, but this is often a very expensive option. You may end up paying more than you would if the IVA ran until the end of its term.
This is because the time it takes to complete the IVA is not fixed, and the cost of the IVA each month can also change.
When you ask your IVA supervisor for an early settlement figure, you will not receive a discount on any future payments and may even need to make an additional payment in respect of the supervisor’s fees.
The IVA will stay on your credit file, even if it is settled early. There is no evidence that settling an IVA early improves your credit report.
Can I get a loan to pay off my IVA?
Some IVA companies will approach you in the final years of your IVA and offer you a loan to settle your IVA early. This is sometimes called an exit loan.
An exit loan is a very bad idea. Settling your IVA early tends to be an costly exercise, and these loans also carry very high rates of interest.
You will pay for much longer than you would have done in the IVA, and interest will be charged during that period making it a much more expensive option.
Although the companies that offer the exit loans are separate to the IVA company, they are almost always under the same ownership, meaning this is only in the interests of the IVA supervisor who will benefit from the fees and the interest charged on the money you have borrowed.
If you feel under pressure to settle your IVA early, or to take an exit loan, please get in touch with us to discuss your options.
Will I be able to get credit once my IVA has ended?
Regardless of how your IVA ends, once it has ended you will no longer be insolvent, and your name will be removed from the Insolvency Register. This should happen within three months.
Getting credit should start to get a little easier once you are not insolvent, but it will still be very difficult to borrow money until the IVA has been removed from your credit file. This will happen 6 years after the date that the IVA started.
If your IVA has been discharged, and six years has passed since the start date, then you will find it much easier to get credit. Until then, you will likely find it to borrow money and may be offered very high interest rates for credit.
The key thing to bear in mind is that if your IVA is not working for you, then you have options. These include terminating your IVA, ending your IVA early and settling your IVA. There are consequences of any of these.
If you’re thinking about the best way to end your IVA, please get in touch with us for some free and impartial advice.
Once your IVA has terminated, you will need to find a way to deal with the debt that was covered under the arrangement. Please do not ignore the debt, as it will not go away. You should always speak to your lenders if they are trying to contact you, even if you cannot afford to make any payment to them, or you dispute the debt. If you do not, then matters will only get worse.
Galahad & Co. are experts in this area of law and always happy to help if you want to end your IVA and challenge your creditors.