Should I just stop paying my creditors?

[rebecca2809]

Hi

I'm new to this forum and just started considering my options today. Thanks to this website and forum, I've learnt so much today. I would be greatful for some advice on the following -

I'm in a real financial mess and after seeking professional advice it seems that an IVA may be ther best option, if it gets accepted. I was advised that I should now stop paying the creditors and default on payments. I guess that this seems strange as for years I have kept my head above water by making the payments by running myself into the ground working extra hours and borrowing from one place to pay another. I've not defaulted on a payment in the last 3 year but I can't carry on like this as I've now reached a crisis point with no end in sight.

My concern is that if I just stop paying all my creditors whilst I apply for an IVA and this gets rejected, would this place me at a greater disadvantage with the creditors in trying to come to arrangements in the future (such as debt management plan) when I could have made some sort of token payment? Should I just make minimal payments? I guess i'm having issues with guilt, I have got myself into this mess for various reasons so to suddenly default on all loan and credit card payments seems wrong.

Many thanks for any advice

Rebecca

[MelanieGiles]

Hi Rebecca

Whether your stop your payments to creditors, or continue to make token payments, the eventual outcome is unlikely to be affected if you have to do a DMP in the event of IVA rejection. It is quite normal for IPs to advise you to stop making payments, so don't worry and follow the advice you have been given.

Regards, Melanie Giles, Insolvency Practitioner for over 20 years.

To have me propose an IVA for you, please visit:
http://www.melaniegiles.com/ivaEnquiry.asp

See customer feedback at:
http://www.iva.com/iva_companies/IVA_Advice_Bureau.asp

[shelly1]

Hi,
This may sound like a really silly question but, if you are advised to stop making payments to your creditors, where does the money go that you would have paid out? Are you supposed to save it and hand it over at a later stage?

[Reviva UK]

Hi rebecca and welcome to the forum

If you have made payments without a hitch why would the creditor accept an IVA. perhaps if you actually demonstrated that the minimum payments were no longer affordable then they can see thay you have a problem and are likely to work with the IP to get a resolution.

secondly 5 years is a long time and it might not be a bad idea to have a small energency fund so during the IVA set up process if you kept what would normally have been the payments you will have a "get out of gaol" card for when the car breaks etc

[size5]

It is necessary to advise that normal contractual payments cease as generally they are only funded by further borrowing, i.e robbing Peter to pay Paul. As the money wasn't there in the first place then it doesn't go anywhere.
There is nothing to stop you looking at a DMP if an IVA is rejected, similarly there is also nothing to say that you cannot look again at an IVA a little later on after the DMP has been running for a while, the new protocol seems to hint or imply that that may become a more and more common scenario.
As for where the money that can be afforded goes, it should replace the old payments. I advise that it should be paid to the creditors on a pro rata basis, this immediately stops the borrowing cycle anyway and the new payment should always be affordable, so it is a good re-education process and a useful tool in budgeting properly again. Others say that it should be paid directly to the IP as a show of good faith, refundable of course if the IVA doesn't go through. Either way is fine.