When you make an agreement regarding the terms of an IVA or Individual Voluntary Arrangement, the agreement requires regularly paying your creditors an agreed upon amount. But are payment breaks allowed if there is a change in your circumstances?
If, for example, you become unemployed during the duration of the IVA or you get divorced and no longer have the means to make payments, what will happen then?
Typically, the duration of an IVA is 5 year and this is quite a long period to expect that your circumstances will not worsen, particularly in instances when these changes are beyond your control. This is something that is taken into consideration by Insolvency Practitioners and creditors and they do have the capacity to take actions to assist the IVA by permitting short payment breaks, when a genuine need arises.
Traditionally, the majority of IVA proposals have a standard condition that allowed for only 2 missed payments during the IVA period. This was intended to make allowance for when individuals plainly refused to continue making payments into their IVA; following 2 missed payments, the Insolvency Practitioner default the IVA and notify the creditors of the failure of the arrangement; the creditors will then be free to again pursue the debtor directly.
The actions taken by the creditor could include petitioning for the bankruptcy of the debtor. Although this action is not one that is always taken by the creditors, the action to threaten bankruptcy is normally enough to serve as a deterrent to flagrant payment violations.
To ensure that the IVA is given the best chance to be successful for all parties involved, there was a redefinition of the payment break clause as outlined the IVA Protocol of 2008. A Payment break of as many as 6 consecutive payments is now allowed once for the duration of the IVA. This implementation of this is done based on the sole discretion of the Insolvency Practitioner.
This has made provision for more financial support than ever before, for individuals who are experiencing extreme but temporary changes in their circumstances during an IVA. Throughout this process, the authority of the Insolvency Practitioner is maintained and this allows him or her to determine when and if a break is acceptable, without needing to convene a meeting.
Illness or redundancy is high on the list of situations that cause a change in the circumstances of the debtor; however, situations such as a domestic emergency that makes immediate financial expenditure necessary could also be covered. These situations include the breakdown of a vehicle or the replacement of a failed boiler.
If the payment issue is of a temporary nature, two options would be available to put the IVA back on course when things go back to normal:
an extension in the duration of the IVA by the missed payment number
an arrangement to pay off the arrears by overpaying into the IVA.
For both options, it becomes necessary for all parties to the agree on how to move forward and once an agreement has been reached, it must be adhered to.
In every situation, the ideal choice is to make contact with the Insolvency Practitioner once you have realized that you will have a problem making the IVA payments. When the Insolvency Practitioner is kept abreast of what is happening, your chances of reaching a favourable outcome and keeping the IVA on track will be increased.
For more details about your options, download the free guides from our website or fill-out the IVA Calculator form and one of our IVA specialists will get back to you.