Can I Legally Cancel My IVA at Any Time? What Happens?
For free & impartial money advice you can visit MoneyHelper. We work with The Debt Advice Service who provide information about your options. This isn’t a full fact-find, some debt solutions may not be suitable in all circumstances, ongoing fees might apply & your credit rating may be affected.
For free & impartial money advice you can visit MoneyHelper. We work with The Debt Advice Service who provide information about your options. This isn’t a full fact-find, some debt solutions may not be suitable in all circumstances, ongoing fees might apply & your credit rating may be affected.
Table of Contents
- What is an IVA? Jump
- What does “formal debt solution” mean? Jump
- How does an IVA work? Jump
- What if I change my mind about an IVA? Jump
- Can I cancel my IVA before the creditors' meeting? Jump
- Can you cancel an IVA after 2 years? Jump
- Can my IVA be cancelled? Jump
- Struggling to pay your IVA Jump
- Can I legally cancel my IVA? Jump
- What happens if your IVA fails? Jump
- How to avoid bankruptcy after a failed IVA Jump
- Does cancelling my IVA affect my credit score? Jump
- “I was mis-sold an IVA” Jump
- Can you cancel an IVA? (Summary!) Jump
- Alternatives to an IVA Jump
Questions on whether you can legally cancel an IVA are rife on forums, just like this example:
Source: https://forums.moneysavingexpert.com/discussion/1501605/cancelling-an-iva
I’ve been asked this question many times directly myself. So what is the answer? Can your IVA be cancelled without consequences? Let’s find out.
What is an IVA?
An Individual Voluntary Arrangement (IVA) is a formal debt solution to help you with unsecured debt and arrears.
With an IVA, you make one affordable monthly repayment which gets split between all creditors.
Do you have to pay?
There are ways to have debt written off in the UK.
If you genuinely can’t afford your debt repayments then looking into whether you could have your payments lowered or written off might be just what you need.
If you want to find out whether you qualify for having debt written off or payments lowered then fill out the short form below.
What does “formal debt solution” mean?
A formal debt solution is any debt solution that is legally binding. When you use a formal debt solution, you and your creditors won’t be able to back out of the agreement. There can be serious repercussions if any formal debt solution ends without mutual agreement.
The opposite is an informal debt solution, such as a Debt Management Plan (DMP). You and your creditors can back out of any informal debt solution without repercussions.
For example, the creditor could say that it doesn’t want to continue the agreement and take legal action instead. Or you could back out to use a different debt solution.
How does an IVA work?
An IVA is set up and managed by an Insolvency Practitioner (IP). The IP works with you to propose a monthly repayment amount based on what you can afford to repay.
Creditors then meet to vote on whether to approve or reject the IVA. If accepted, all creditors are included in the IVA even if they individually rejected the IVA proposal.
You would then make a monthly payment that is proportionally divided between creditors based on the amount owed to each of them. Within this monthly repayment are fees which are paid to the IP.
This continues for five years. After five years, you’re then asked to:
- Release equity from any property you own to pay a lump sum and end the IVA
- Make a lump sum payment via a third party to end the IVA, such as a family member
- Make 12 more payments over the course of a year
Once the IVA has ended, any remaining debt is written off.
Can you lower your repayments?
If you’re struggling to pay back your debt, then you might qualify for a debt solution.
Some solutions lower your monthly payments while others write off a portion of your debt.
To find out whether they could work in your situation, hit the button below.
What if I change my mind about an IVA?
You can change your mind about using an IVA at any point before the IVA is approved and becomes legally binding.
If your IVA has been approved and you change your mind after, you will have a few options:
- Ask creditors to agree to cancel your IVA (very difficult!)
- Try to settle the IVA in exceptional circumstances
- Allow the IVA to fail
I will be covering these three possible scenarios below.
Can I cancel my IVA before the creditors’ meeting?
You’re not bound by the terms of an IVA until it’s approved within the creditor meeting.
If you don’t want to go ahead with an IVA, you should inform your IP as soon as possible before the creditor meeting starts.
Can you cancel an IVA after 2 years?
The Insolvency Act 1986 doesn’t give any reason why you would be able to cancel your IVA after two years.
If you received a windfall, you might be able to negotiate a full and final settlement offer to end your IVA earlier than agreed. But this would need to be negotiated with creditors.
In fact, some IVA agreements include a windfall clause that makes you cough up to end the IVA, should you receive significant money.
But that’s not the full story…
Can my IVA be cancelled?
Your IVA can be terminated if you stop making repayments as per the IVA agreement. This is known as your IVA failing.
Some people choose to purposefully not make IVA payments for different reasons. One of those reasons is that they’re struggling to meet their repayment obligation.
But there is a better way to deal with such a situation…
Struggling to pay your IVA
Citizens Advice states that you should tell your IP as soon as you realise you’re struggling to keep up with IVA payments.
They might be able to renegotiate smaller repayments or even give you a break from repayments for a while.
If there is a significant reason why you can’t afford payments anymore, such as being seriously injured or being diagnosed with a serious medical issue, the IP might be able to negotiate to have your IVA settled early. This would mean having all the remaining debt written off.
Can I legally cancel my IVA?
You could only legally cancel your IVA if your creditors agree to the cancellation, but this can be very difficult.
It’s more likely that your IVA will simply fail if you cannot pay or refuse to make more payments.
What happens if your IVA fails?
If your IVA fails then you will still owe all the creditors your debt.
The creditors can take you to court to make you pay, and they could even petition to make you bankrupt to get their money.
Although bankruptcy is quite rare, it’s still an option for creditors. Bankruptcy would have serious consequences for your short-term and long-term financial future.
How to avoid bankruptcy after a failed IVA
When an IVA fails you may need to act fast to prevent creditors from making you bankrupt.
Contact each creditor individually to try and arrange a repayment plan. If this isn’t an option you could simply ask them to pause taking further action while you assess your other options to repay.
Does cancelling my IVA affect my credit score?
An IVA is registered on your credit file for six years from its approval date whether it’s completed or not. The IVA will significantly reduce your credit rating.
Creditors won’t give up getting their money once the IVA fails, so you should expect more action to make you pay, including further damaging markers on your credit report.
And you should also know that an IVA that gets extended for more than five years – which is of course rare – it will be marked on your credit file for even longer than the standard six years.
“I was mis-sold an IVA”
The IVA industry is heavily regulated. You must have received professional and impartial advice before entering into an IVA.
If you think you didn’t get the right advice before signing up for the IVA, you could make a complaint about a debt management company or your IP.
Complaints need to be lodged directly. If the response is inadequate, you can escalate the complaint against the IP or debt management company to the Insolvency Service or Financial Ombudsman Service, respectively.
Can you cancel an IVA? (Summary!)
An IVA is a legally-binding debt solution. As such, you can only legally cancel an IVA in the following situations, which are all quite rare:
- Your creditors agree to terminate the IVA
- You settle the IVA early with creditor approval due to a significant event, such as a serious diagnosis or injury
- You receive a windfall and agree to pay off the debts early
The only other way to end the IVA is if the IVA fails. You can often avoid this by speaking with your IP and coming up with a new proposal. But if it does fail, you can be taken to court and even made bankrupt.
“It will only get worse” 😩
It’s cliché to say, but with debt it’s true; the longer you leave it, the worse the problem gets.
There are straightforward and effective ways to deal with debt, but you have to know your options.
Fill out the short form to find out about the debt solutions that could reduce your monthly payments or even write off some of your debt.
Alternatives to an IVA
An IVA is one of many debt solutions. There are other solutions you might qualify for, and some of them will also write off some of your debt.
It won’t be easy switching from a failed or terminated IVA to another debt solution, especially if creditors are set on taking legal action or making you bankrupt. But it’s worth exploring your options, which you can do on my main debt help page.
How much could you write off? 