What should you do if you’re struggling to make your individual voluntary arrangement (IVA) payments? Neil Dingley of Moore Recovery Stoke on Trent explains the options available to you.

What is an individual voluntary arrangement (IVA)?

An individual voluntary arrangement (IVA) is a legally binding contract between an individual (the debtor) and his or her unsecured creditors, under which the debts owed by the debtor to his or her creditors will be compromised by time and or amount, depending on the debtor’s financial circumstances.

Typically, an IVA will enable the debtor to repay a proportion of his or her debts over a period of time; usually no longer than five years. The proportion to be repaid will be determined by what the debtor can afford and what the creditors are prepared to accept.

What is a ‘default clause’ in an IVA?

Many IVAs, especially those which are approved under the IVA Protocol (‘Protocol IVAs’), have a monthly contribution to be paid into the IVA as their basis. The terms of the proposal will set out what happens if you are unable to make one or more payments. This is normally called the ‘default clause’. If you are in breach of the terms of the IVA, then the supervisor will be obliged to fail the IVA.

The wording of default clauses may vary from proposal to proposal. There may be a degree of freedom, in that, for example, a single missed payment may not of itself constitute a breach if it were to be remedied the following month. This would enable you to catch up on any arrears to prevent the IVA from failing. 

What do I do if I am struggling to make IVA payments?

Taking the proposal as a whole, if you think that you may not be able to make the monthly payments for the remainder of the IVA, and this will have a material effect on the outcome of the IVA, then you should speak to your supervisor.

Your supervisor has the power to call a meeting of your creditors to vary the original terms of the proposal, in line with what you think you may be able to afford. Any modification is subject to the normal rules of IVA voting in that it must be approved by 75 per cent of voting creditors.

Similarly, it is possible, if you have made some contributions into the IVA, for your supervisor to put forward modifications that your IVA be treated as completed successfully, based on the total contributions made, even if this is lower than originally proposed. Ultimately it will be for creditors to decide.

If the extent of your struggle is such that it will not be possible to comply with the terms of your proposal in any event, and if creditors are not prepared to accept the contributions made to date as the basis for a successfully completed IVA, then your supervisor will be obliged to issue a ‘Certificate of Non-Compliance’ and to fail the IVA.

Am I allowed to cancel an IVA?

Once an IVA has been approved, and is up and running, you are bound by its terms as it is essentially a contract between you and your creditors. There is no specific provision within the Insolvency Act 1986 to cancel an IVA after it has started.

In practical terms, if you felt that you were not able to make the monthly payments you should inform your supervisor. Depending on the terms of the proposal your supervisor may also be obliged to petition for your bankruptcy. However, this is rare, and debtors should always be encouraged to come forward.

It should be noted that if an IVA fails or is ended early, it will remain on someone's credit record for six years from the start date.

Is there any way to end an IVA early?

Once an IVA is approved by creditors it represents a binding contract between you and your creditors. The only practical way to bring it to a conclusion prematurely is by breaching those terms and failing the IVA or by agreement of the creditors to a variation of the original proposal.

These facts may sound harsh but they go to emphasise the contractual nature of IVAs and as such an IVA should only be entered into if you are comfortable at the outset that the contractual obligations are achievable and that the proposal itself is fit, fair and feasible form both your point of view and those of your creditors.

There are alternative options available, such as debt relief orders or bankruptcy, and often someone struggling to make IVA payments will need debt advice with priority debts (rent, mortgage, council tax etc). There is free advice available from the likes of National Debtline or Citizens Advice.

How has coronavirus (COVID-19) affected IVAs?

With the coronavirus (COVID-19) pandemic affecting much of the country, new Coronavirus (COVID-19) Guidance for the Straightforward Consumer IVA Protocol has been brought in to give IVA supervisors more power to help people who are struggling. The guidance includes:

• If a consumer is faced with “an emergency item of expenditure” or “an unforeseen reduction in income” because of coronavirus and they are unable to pay either the full amount due under the terms of the IVA, they may be allowed to reduce payments by up to 25 per cent and to take payment holidays for up to three months without a variation.
• Where the consumer is unable to remedy a breach of the arrangement, and that breach can be shown to be as a direct result of the COVID-19 pandemic (for example, the loss or reduction of income), the supervisor may use their discretion to suspend the issue of a breach notice.

There are, however, conditions which need to be met and should be fully understood before action is taken.

About the author

Neil Dingley is an Insolvency Practitioner and Partner of Moore Recovery Stoke on Trent and has a background in information technology and accountancy.

See also

What is an IVA and is it right for you?

Bankruptcy or an IVA - which is best?

A brief guide to debt relief orders

Everything you need to know about debt management plans

Find out more

Insolvency Act 1986 (Legislation)

Individual Insolvency Register (GOV.UK)

Coronavirus (COVID-19) Guidance for the Straightforward Consumer IVA Protocol (GOV.UK)

Image: Getty Images

Publication date: 8 June 2020

Any opinion expressed in this article is that of the author and the author alone, and does not necessarily represent that of The Gazette.