What Happens If I Can’t Pay My IVA?
Missing IVA Payments — What Happens Next?
An Individual Voluntary Arrangement (IVA) is a formal, legally binding commitment. You agree to make monthly payments to your Insolvency Practitioner (IP) over five or six years, and in return your creditors agree to freeze interest and charges and accept reduced payments. When everything goes to plan, the IVA completes and remaining debts are written off.
But life does not always go to plan. What happens if your circumstances change and you can no longer keep up with your IVA payments?
What Happens If You Miss a Payment?
Missing a single payment does not automatically terminate your IVA. However, your IP will be alerted when a payment is missed and will make contact with you to find out why. This initial contact is important — do not ignore it.
The first step your IP will take is to understand the reason for the missed payment. If it is a temporary issue — a short delay in your salary, a one-off unexpected expense — your IP may allow you to make up the missed payment over the following months without any formal action being taken.
If you miss payments repeatedly or without explanation, the situation becomes more serious. Most IVA terms allow a certain number of missed payments — typically up to two or three — before the IP is obliged to take formal action. Beyond that threshold, the IP has a duty to consider terminating the arrangement.
Can an IVA Be Modified?
Yes — and this is one of the most important things to understand. An IVA is not completely rigid. If your circumstances change in a significant way that makes your current payment level unsustainable, your IP can apply to your creditors for a variation to the IVA.
A variation is a formal modification to the arrangement. It might reduce your monthly payments, extend the length of the IVA, or adjust the terms in other ways to reflect your changed circumstances. Creditors holding 75% of the debt value by value must agree to any variation, just as they agreed to the original IVA.
Common circumstances that might lead to a variation include:
- Redundancy or a significant reduction in income
- Long-term illness or disability that affects your ability to work
- The birth of a child or a significant increase in household expenses
- A relationship breakdown that changes your financial position
The key is to contact your IP as soon as you know your circumstances are changing — before you start missing payments, if possible. Early communication gives the best chance of a successful variation.
What Is a Payment Break or Payment Holiday?
Some IVA agreements include a provision for a short payment break — typically one to three months — in cases of genuine temporary hardship. Not all IVAs include this, and it is not automatic. Your IP will need to agree to it and may need to notify your creditors.
A payment break does not cancel those months — the missed payments are usually added to the end of the IVA, extending its length accordingly. It is a temporary solution for a temporary problem, not a way to reduce the total amount paid into the arrangement.
What Happens If the IVA Fails?
If no variation can be agreed and you are unable to maintain payments, your IP may issue a certificate of termination. This formally ends the IVA. There are serious consequences to understand:
- Your debts return to their original position. All the debts that were included in the IVA — including any that have been partially repaid — return to their pre-IVA status. Interest and charges that were frozen during the IVA may also be reinstated.
- Creditors can take action again. Once the IVA is terminated, creditors are free to pursue you for the full outstanding amounts, seek county court judgments, and instruct bailiffs.
- The IVA still appears on your credit file. A failed IVA will be recorded on your credit file for six years from the start date, with a note that the arrangement was not completed. This is more damaging than a completed IVA.
- Bankruptcy is often the next step. In many cases, a failed IVA leads to bankruptcy — either because your creditors petition for it or because you apply for it yourself as the only remaining option. It is important to get debt advice immediately if your IVA fails, before creditors begin enforcement action.
How to Avoid IVA Failure
The most important thing you can do is maintain open communication with your IP throughout the IVA. If you anticipate problems, contact them before you miss payments. Most IPs would rather negotiate a variation than deal with a termination — it is in nobody’s interest for the arrangement to collapse.
Practical steps to reduce the risk of IVA failure:
- Build a small emergency fund if your IVA budget allows — even a few hundred pounds can help absorb an unexpected bill without missing an IVA payment
- Review your budget carefully each time your IP requests an annual review — flag any changes in income or expenditure promptly
- If you are in a job where your income might be cut or lost (for example, contract work or a struggling business), consider this when deciding whether an IVA is suitable before entering one
- Declare any windfalls or significant income increases immediately — attempting to conceal them is a serious breach of IVA conditions and can lead to termination and potentially criminal proceedings
What If You Are Already in Difficulty?
If your IVA is already in trouble — you have missed payments, you have received a warning from your IP, or you know your circumstances are not sustainable — take action immediately. Contact your IP and explain the situation honestly. Do not wait until payments have been missed for several months.
If your IP is not responsive or you feel you need independent guidance, seek advice from a regulated debt adviser who can assess your situation and advise on your options, including whether a variation, a payment break, or an alternative solution might be available.
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The information on this page is for general guidance only and does not constitute financial advice. Always seek independent professional advice before making a decision about a debt solution.