Section 12 of 16

Problems and IVA failure

The formal breach process, common causes of IVA failure, the risk of bankruptcy after failure, and practical steps to protect your arrangement.

Common causes of IVA failure

An IVA can be terminated if you fail to comply with its terms. The most common reasons include:

  • Missed payments: Accumulating more missed payments than the proposal allows (commonly three or more)
  • Failure to cooperate with annual review: Not returning paperwork or providing evidence when requested
  • Failure to declare a windfall: Not informing the Supervisor of an inheritance, compensation payment, or other receipt
  • Obtaining credit without consent: Taking on new credit above the threshold without your Supervisor's agreement
  • Variation rejected: Where circumstances have changed so significantly that original terms are unworkable and creditors will not agree to modified terms
  • False information: If material information was withheld or misrepresented when setting up the IVA

The formal breach process

When a breach occurs, your Supervisor does not immediately terminate the IVA. They are typically required to write to you formally notifying you of the breach, give you a reasonable opportunity to remedy it, and if unresolved within the specified time, notify creditors and seek their views on whether to terminate.

Do not ignore breach letters

If you receive a breach letter from your Supervisor, respond as soon as possible. Ignoring it will not make the problem go away and may limit your options. Even if you cannot immediately remedy the breach, making contact and demonstrating willingness to engage can make a significant difference.

Consequences of a failed IVA

If your IVA is terminated, the arrangement ends and you are once again liable for your original debts in full — less any amounts already paid to creditors. Creditors can then pursue you individually. Interest and charges frozen during the IVA may be reinstated. The IVA entry on the Insolvency Register is updated to show termination, and the entry on your credit file remains for six years from the original start date.

Failure and subsequent bankruptcy

In some cases, the Supervisor or a creditor may petition for your bankruptcy following IVA failure. The Insolvency Act 1986 allows a creditor (or the Supervisor acting for creditors) to present a bankruptcy petition if the IVA has been breached and the outstanding debt exceeds £5,000. This is not automatic — many people whose IVAs fail do not become bankrupt — but it is a realistic possibility where creditors feel they have no other recourse.

Avoiding failure

Many IVA failures are preventable. If you are struggling:

  • Contact your Supervisor immediately and explain the situation
  • Ask whether a payment break or informal adjustment is possible
  • If circumstances have changed significantly, ask whether a variation is appropriate
  • Keep all correspondence in writing so there is a clear record
  • Seek independent advice from a free debt advice service

Free independent advice is available from Citizens Advice, StepChange Debt Charity, and the National Debtline.

Ending an IVA voluntarily

There is no straightforward mechanism to simply end an IVA because you no longer wish to be in it — it is a binding legal agreement. However, you may be able to negotiate a full and final settlement if a lump sum allows creditors to be paid a sufficient dividend early, or allow the arrangement to be terminated if your circumstances genuinely make continuation impossible.