April 2024
Why Would A Creditor Refuse an IVA in April 2024
Suppose you are struggling financially and find yourself suffering from the burden of lifestyle debts or debts from excessive gambling. In that case, you might be looking for debt solutions that could help alleviate your problems. One debt solution is an Individual Voluntary Arrangement or IVA for short.
However, although an IVA can be a very effective way of dealing with problem debt, it is not always possible to get one. This is because an IVA needs to be approved by a majority of your creditors before it can go ahead, and some creditors may refuse to approve it.
This article sets out some of the reasons a creditor might refuse an IVA and gives you some tips on what you ought to do next if you find yourself in those circumstances.
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What is an IVA?
An IVA is a legally binding agreement made between you and your creditors in which you agree to repay your debt over a fixed period of time, usually five years. In return, your creditors agree to freeze any interest and charges on your debts and to write off any outstanding debt that you are unable to repay.
Why Would a Creditor Refuse an IVA?
There are a number of different reasons why a creditor might refuse to approve an IVA. For example, they may feel that you could afford to repay more of your debt than you are proposing to under the terms of the IVA. Or they may simply be unwilling to agree to any kind of debt solutions that involve writing off some of the overall debt owed to them.
Whatever the reason for their decision, if a creditor refuses to approve your IVA, then it is likely that the whole arrangement will collapse. This can be frustrating and upsetting, but it is essential to remember that there are other options available for dealing with problem debt.
If you are struggling to repay your debts, it’s worth going online to search for free debt advice on what alternatives might be available to you. Alternatively, contact a reputable debt advice charity such as StepChange or National Debtline for debt help and support for debt management.
Some of the main reasons your IVA might be refused are:
Incorrect financial information
If you have provided your debt adviser with incorrect or incomplete information about all the income you have as well as outgoings or assets, this could lead to your IVA being refused. This is because the figures used to calculate your IVA payments will be based on the information you provide, so it’s vital that you are honest from the outset.
This means that:
- Your income and expenditure statement needs to reflect the reality of your financial circumstances. This means that no source of income should be omitted or understated.
- If you work a lot of overtime to increase your take-home pay and spare monthly income, your IVA proposal should disclose this information.
- Allowances for essential living expenses and household costs should be claimed, but they should not be inflated unreasonably to boost funds.
- If you are cohabiting, the household expenses will need to be split between you and your partner. The division is usually calculated pro rata to the respective incomes of the partners.
- Even if your partner is not in debt, creditors will want to see your combined incomes and expenditures.
An unrealistic IVA offer for your creditors
If the monthly payments you are proposing to make under the terms of your IVA are too low, or the length of time you are proposing to repay your debts is too short, then your creditors may refuse to agree to the arrangement. This is because they feel that they would not be repaid in full under the terms of the IVA, and so it will be in their best interest to reject such a proposal.
The IVA proposal should be your best attempt to address all of your unsecured debts, and the payments which are offered to creditors must be credible and reasonable.
HMRC compliance
If you owe money to HMRC (‘the taxman’), they must agree to the IVA in order for it to go ahead. This is because any tax debts you owe are classed as ‘priority debts’ and must be repaid in full under the terms of an IVA.
If you have not yet completed your self-assessment tax return or if you have underpaid taxes, an IVA will be impossible until your tax affairs are in order. This is because your creditors will demand proof that any outstanding tax obligations have been completely paid or that arrangements for their repayment over the duration of the IVA are in place.
Your past behaviour may be unacceptable
If you have previously entered into an IVA or another form of debt solution and failed to keep up with the repayments, your creditors may be unwilling to agree to another one. This is because they feel that you are not a reliable borrower and are unlikely to stick to the terms of the IVA.
Your creditors may also be concerned if you have missed payments on other debts in the past if you have a financial history of defaulting on loans or credit agreements, or have been borrowing recklessly, knowing that the debts could not be repaid in any reasonable time frame.
To increase the chances of your IVA being accepted, it’s important that you make all your repayments on time and in full for at least three months before you apply for an IVA. This shows creditors that you are capable of managing your debts and are committed to repaying them.
Not the best option for creditors
While some creditors prefer the legal framework in which IVAs are supervised as distinct from the largely unregulated, informal and voluntary nature of a debt management plan, if a debt management plan (DMP) could potentially result in all creditors being repaid in full in a reasonable period of time, then you might find that creditors refuse an IVA proposal.
"An IVA is a legally binding agreement made between you and your creditors in which you agree to repay your debt over a fixed period of time, usually five years. In return, your creditors agree to freeze any interest and charges on your debts and to write off any outstanding debt that you are unable to repay."
The offer might not be feasible to your creditor
If the amount estimated to be paid in the IVA is particularly low, it may not actually be financially viable for the creditor to accept the IVA. The administrative costs of providing proof of debt and keeping the account open might not be worthwhile financially, and so a creditor might reject your IVA.
Recent debts
The personal relationship between the creditor and the debtor can also be a significant factor in determining the creditor’s attitude towards an IVA. If you are a still relatively new customer and all your debt was incurred within the last six months, it might be more likely that your creditor will reject your IVA.
However, if you are a long-term client, such as over ten years or more, and the new debt is only a consolidation of several existing debts with that lender, they might be more likely to accept your IVA.
All unsecured creditors must be treated equally
As the debtor, you should take particular care that your IP includes all unsecured creditors in your IVA proposal and that all creditors are treated equally.
HMRC, in particular, dislike any IVA proposal where one creditor, sometimes called a hostage creditor, tries to gain preferential treatment over other creditors.
As an example, if you are self-employed, you may have a creditor who supplies important items or services to your company. That lender may only be willing to continue doing business with you if they are excluded from your IVA and if they receive full payment for all obligations incurred by you before the IVA is approved. This would amount to preferential treatment in the IVA for that creditor, who is essentially holding you hostage.
From your perspective, including the hostage creditor’s debt in the IVA might result in the supplier of critical goods or services discontinuing their assistance and your company failing as a consequence, which would result in the IVA failing.
If alternatively, you fail to disclose your liability to the hostage creditor and exclude it from the IVA, intentionally intending to service that debt in secret, the IVA could fail if and when the creditor discovers the undue favouritism.
The creditor could be in the process of securing the debt
A creditor might have already begun to take steps to secure the total debt by taking out a charging order on your property.
If a creditor has already obtained an interim charging order when your IVA proposal arrives, they are left with two choices.
- Proceed with obtaining a final charging order and rely on that for the satisfaction of the debt they are owed, banking on the IVA being rejected so that the charging order can be continued with. In the case that they decide to rely on the charging order, a creditor would not be allowed to vote for or against the proposed. If the IVA was approved, the charging order would not be granted but the creditor could still claim as an unsecured creditor in the IVA, thereby receiving the same dividend as the other unsecured creditors.
- The creditor can make a gamble and submit an unsecured debt claim in the IVA thereby allowing them to vote for or against the IVA proposal. If the IVA proposal was rejected, the creditor would be able to make a new application for a charging order in the aftermath.
How can I make a creditor more likely to agree to an IVA?
If you need to make an IVA more attractive to a reluctant creditor, there are a number of ways in which this might be achieved.
- You or your insolvency practitioner may need to reassess your assets and liabilities and increase the percentage dividend payable to unsecured creditors.
- Your insolvency practitioner may need to offer a larger lump sum payment from the proceeds of sale of assets such as equity release from your property.
- Your insolvency practitioner may need to propose a longer term for the IVA, for example five years instead of three years.
What Should I Do If My Creditor Refuses an IVA?
If you find yourself in a situation where a creditor has refused to approve your IVA, it is crucial to get expert debt advice as soon as possible. An experienced debt adviser will be able to assess your current financial circumstances and give you information on all of the options available to you. They can also negotiate with your creditors on your behalf and try to reach an agreement that is acceptable to both parties based on what your creditors propose.
IVAs are just one of the many different solutions available for dealing with problem debt. If an IVA isn’t right for you, there may be another solution that could help you get your finances back on track. To find out more about the different options available and to get expert debt advice, contact a reputable debt charity such as StepChange or National Debtline today.
What are the next steps if my IVA is rejected?
If your IVA proposal is rejected by your creditors, you will have to seek other debt solutions. There are a number of different options and varieties of debt repayment plan available to you.
Debt Management Plan (DMP)
If you can afford to make regular monthly payments towards your existing debts, a DMP from a debt management company could be a good option for you. A DMP is an informal agreement between you and your creditors to help with repaying debt over a period of time. Where most IVAs are for a term of five years, then a reasonable period of time for a DMP could be anything from six years to ten years.
Debt Relief Order (DRO)
If you have a low level of personal debt and a low income, you may be eligible for a Debt Relief Order. Debt relief orders are a type of formal insolvency procedure that can write off your debts if you meet certain criteria.
However, in order to qualify for a DRO, you need to have little to no assets to your name. There are also other strict eligibility criteria of which you should be aware.
Bankruptcy
Bankruptcy is a formal insolvency procedure that allows you to discharge your obligations and get your debt settled if you are unable to do so otherwise. You should only declare bankruptcy as a last resort since it may have significant ramifications for your finances and credit score.
Where can I get debt advice and more information on IVA failure?
If you’re struggling with crippling debt and considering an IVA, it’s important to seek debt advice before making any decisions. A reputable debt charity such as StepChange or National Debtline is an independent service set up to provide you with free, impartial debt advice and IVA advice and help you to explore all of the options available for your personal circumstances.
Alternatively, if you fail to make an initial IVA proposal work, you can seek further debt advice from an adviser regulated by the financial conduct authority.
Article author
Katy Davies
I am a keen reader and writer and have been helping to write and produce the legal content for the site since the launch. I studied for a law degree at Manchester University and I use that theoretical experience, as well as my practical experience as a solicitor, to help produce legal content which I hope you find helpful.
Outside of work, I love the snow and am a keen snowboarder. Most winters you will see me trying to get away for long weekends to the slopes in Switzerland or France.
Email – [email protected]
Frequently Asked Questions
What is an IVA?
An IVA is a legally binding agreement made between you and your creditors in which you agree to repay your debt over a fixed period of time, usually five years. In return, your creditors agree to freeze any interest and charges on your debts and to write off any outstanding debt that you are unable to repay.
What are the next steps if my IVA is rejected?
If your IVA proposal is rejected by your creditors, you will have to seek other debt solutions. There are a number of different options and varieties of debt repayment plan available to you.
What Should I Do If My Creditor Refuses an IVA?
If you find yourself in a situation where a creditor has refused to approve your IVA, it is crucial to get expert debt advice as soon as possible. An experienced debt adviser will be able to assess your current financial circumstances and give you information on all of the options available to you. They can also negotiate with your creditors on your behalf and try to reach an agreement that is acceptable to both parties based on what your creditors propose.
Where can I get debt advice and more information on IVA failure?
If you’re struggling with crippling debt and considering an IVA, it’s important to seek debt advice before making any decisions. A reputable debt charity such as StepChange or National Debtline is an independent service set up to provide you with free, impartial debt advice and IVA advice and help you to explore all of the options available for your personal circumstances.
