What happens if an IVA fails
If your IVA fails, the protection ends. Costs, risks and what actually happens, explained without the sales pitch.
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Why IVAs fail
Overwhelmingly, because the original payment was set at a level the person could not actually sustain — often because the income and expenditure assessment was too optimistic, or because it did not allow for the current year's council tax, car repairs, or a realistic food budget. The other common causes are a genuine income drop and a change in circumstances such as relationship breakdown or illness.
What your supervisor should do first
Before terminating, a supervisor should normally explore alternatives: a payment break, a variation reducing the monthly amount, or an extension. These require creditor approval but are routinely granted where the alternative is failure and a poorer return. If you are struggling, ask for a variation before you miss payments, not after.
If it does fail
You receive a certificate of termination. The arrangement ends and the moratorium ends with it. Your original creditors are entitled to the full balance, less any dividends they received, plus contractual interest for the period. Some will resume collection quietly. Others, particularly where the debt is large, may petition for bankruptcy. Get advice immediately — a Debt Relief Order or bankruptcy may now be the appropriate route, and delay makes it worse.
How to reduce the risk before you start
Build the budget on your actual spending, not on what you think you should spend. Include an annual costs line for car tax, insurance, replacement white goods and school costs. Make sure the current year council tax is in there. And ask the practitioner directly: what happens if I lose my job in year three? The quality of the answer tells you a great deal about the firm.
Not sure which of these applies to you?
Answer eight questions about your circumstances and see which routes are worth understanding, before you speak to anyone.
Common questions
Can I restart a failed IVA?
Not the same one. A terminated IVA is over. You can propose a new IVA, but creditors will scrutinise it hard given the history, and approval is less likely. In practice, most people whose IVA fails end up looking at bankruptcy, a Debt Relief Order if they now fall within the limits, or a Debt Management Plan.
Related guides
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