Reasons IVA fail
Summary: This article examines the reasons IVA's (Individual Voluntary Arrangement) fail and options available when they do
Failing at the creditors' meeting
Every effort is made by your IVA advisor and Insolvency Practitioner to ensure that your IVA is accepted by your creditors. Because the criteria the creditors adopt is largely known in advance, it is usual for potential problems to be considered in advance. For example, offering too much (which is unrealistic) or too little as an IVA payment could lead to rejection. At the meeting, creditors are likely to compare the offer with what they might receive in a bankruptcy situation
Reapplying for an IVA
It is perfectly possible to resubmit an IVA application following a failure. Clearly it will be useful to know why the IVA failed first time, and if possible correct that reason. It could even be that a key creditor failed to vote at the meeting, when that vote could have been crucial in the IVA's acceptance. An Insolvency Practitioner will be able to advise on whether such a resubmission is a realistic option.
Failing during the IVA
Failures do occur, usually after a significant change in circumstances. And, typically, these changes will have been brought about by events beyond the control of the person in the IVA. But, occasionally, an IVA can fail as a result of avoidable circumstances where, perhaps, the IVA contributions are set at an unaffordable amount from the beginning, or the IVA applicant isn't fully aware of the obligations an IVA will put on them. Unfortunately, being ignorant of the IVA's terms and conditions isn't a defence in the eyes of the creditors, who may seek to fail an IVA in which the terms have been breached.
As with everything to do with debt, the crucial factor is communication as this can sometimes avoid an IVA failure if caught early enough. So, first action should be to have a chat with your IP. If, however, the IVA failure is unavoidable, it doesn't mean all is lost. Depending on the cause of failure, it may be possible to propose a new IVA based on your new circumstances.
Coping with a failed IVA
It may be that if IVA payment levels cannot be maintained due to a change of circumstances, then bankruptcy is the only realistic alternative. However, for some it may be preferable to make minimal payments to creditors, or enter a Debt Management Plan paying less than the IVA payment level. As ever, professional advice on all options should be sought.