Missold IVAs and Failed/failing IVAs

Many IVA factories are now coming under severe pressure with many of their IVAs failing.  Some factories have already gone to the wall, others will follow, with a huge impact on the debtors whose IVAs they deal with.

If your IVA is in danger of failing, either because you were missold the IVA solution, your circumstances have changed or the IVA factory’s own problems are causing you difficulties, what do you do?  This blog aims to give you some guidance.

Firstly, let’s go back to some basic principles.  An IVA is a contract between you (‘the debtor’) and your creditors.  As with any contract, the wording is absolutely key:  It is essential that you know the fine detail of that contract, how it all fits together, and what you and the Supervisor has to do and not do and what you both have the options of doing.  If you have put it away in a drawer, you now have to take it out, dust it off, read it (at least three times).  There is no excuse for not fully understanding it, it is one of the most important documents in your life.  And that even applies to us blokes who avoid ‘instructions’ etc!

Under that contract the debtor is obliged to do what he said he would do so in the IVA, the creditors too are bound, they have to write off part of their debt.  You have both done something to put in place a contract.  Sure, that contract can often be ‘varied’, provided the agreed IVA Proposal enables that to happen.  If it does not contain any ability to vary the contract, you cant without the consent of all of the creditors.  What does your IVA say?  Indeed do you want to vary it?  Or do you just want to tear it up and go bankrupt?

Let’s now look at ‘defaults’.  A default is where you as the debtor have failed to do something required of you.  More often than not the default will be your failure to make income payments because the IVA was far too harshly written, your creditors pushed far too hard a bargain.  Often the IVA Proposal provides that a failure to make any 2 or 3 monthly payments will be a default.

You need to read the Proposal, and any modifications, to ascertain precisely what constitutes a default, what the Supervisor has to do in the event of a default and what he has the option of doing.  It is essential that you draw the distinction between the Supervisor’s obligations and options.  He will not spend money he will otherwise take as fees in making you bankrupt unless the Proposal or mods forces him to do so.  That is to say, if you want to go bankrupt to put an end to all this, he will not petition for you if he does not have to do so.  It will be down to you to spend the £500 necessary for a debtor’s bankruptcy petition.

Do you have a right of action against the IP who advised you to go into IVA in the first place?  So far I have seen no instances of legal action being taken against IPs for sending people down the wrong route.  Some of the IPs’ governing bodies seem, in my view, to be toothless.  I have seen no instances of people losing their insolvency licence for what I believe to be blatantly bad advice.  And I have seen numerous instances of bad advice.  Such IPs do my profession no good at all and frankly shold be hounded out of it.  I would encourage everyone who believes they have been missold an IVA solution to make a formal complaint to the IP’s governing body.  Obtaining compensation is probably more difficult: the figures involved will probably be quite low.  And frankly, most debtors will want to consign the whole sorry episode to history, and quickly.  Those who feel strongly about pursuing the IP for cash should go to an Insolvency lawyer: but beware, do not throw good money after bad.

I feel the whole IVA debacle has been a sorry indictment on a range of predators – the IPs, banks, and salesmen do no one any credit.  The sooner everyone comes to their senses the better.  IVAs are only appropriate for people who want to protect income or assets: bankruptcy is far better an option for everyone else.  So IVAs work for professionals such as lawyers, accountants, FSA members etc who lose their livelihood if they are made bankrupt, or directors of reasonably profitable businesses.  They are not the panacea for Joe Public’s financial problems.  The sooner that is recognised the better for all concerned.  It may be too late to turn back the clock, but it is not to late for you, if you have been missold an IVA, to now take the proper course.

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