IVA to Bankruptcy
The thing that concerns people most about leaving an IVA and entering bankruptcy is the cost – how will I be able to afford it? It’s simple – the payments that you were making to the IVA will be used to fund the cost over a number of months. You need to remember that it will take at least 5 – 6 months before you receive a letter of termination from the IVA Company – you will need this for court – and it will be possible to collect all of the costs during this time.
What, then, are the steps involved in deciding whether to move from an IVA to Bankruptcy?
- Stop making the IVA payments with immediate effect. If you feel intimidated by the IVA Company, we will write to them on your behalf and advise that you are exiting from the IVA to Bankruptcy.
- Please don’t be concerned about any repercussions; you have the right to leave an IVA just as you had the right to enter into it in the first place.
- Once you have missed three payments you will receive a letter of default and if this is ignored, the IVA Company will issue a Letter of Termination about two months later. The Letter of Termination is required when you take the bankruptcy petition to court.
- Ironically, despite going through the process of leaving the IVA, it will continue to protect you from your creditors until such time as the IVA is terminated.
- However, this will not be the case once the IVA is terminated and unless you enter into bankruptcy, you will be contacted again by your creditors and debt collectors.
- The payments that you were making to the IVA will be used to fund the cost of the process over a number of months.
Advantages of moving from an IVA to Bankruptcy:
- Bailiffs are no longer allowed to enter premises and remove furniture or personal effects.
- Bank accounts are allowed. In fact, there are now several Banks who provide basic current accounts for undischarged bankrupts.
- You are discharged after 12 months instead of the minimum 60 months you will be in an IVA (72 months for homeowners). In some cases, you may apply for discharge after 6 months
- Vehicles may be retained provided they are not too expensive. The guideline is £1000.
- All unsecured debt, including Council Tax, Utility Bills, money owing to HMRC, Credit Cards, Loans, Overdrafts, Catalogues and Store Cards, is included.
- Properties in negative equity are safe in bankruptcy.
Insolvency Practitioners have a duty of care to offer something called ‘best advice’ to their clients. It is not acceptable to simply ask the client if they wish to enter into an IVA and take their answer at face value without clearly explaining what it entails. Failing to do so is inappropriate as the client is unable to make an informed decision. When you decide that an IVA isn’t working for you, you will want to know what your options are and moving from an IVA to Bankruptcy is often the way forward.
Thinking of moving from IVA to Bankruptcy? You may have already stopped paying your IVA or you might have doubts as to whether you were given the right advice in the first place. In most cases, those placed in IVAs cannot realistically meet their IVA repayments and need a more affordable solution. Moving from an IVA to Bankruptcy is almost certainly the best option if you have no assets to protect.