Why May a Creditor Refuse an IVA and What Can I Do About It?

If you have applied to set up an IVA and your creditor has rejected your proposal, you may be confused as to why they have done this and what you can do about it. In this guide, we are going to be taking a look at some of the reasons why a creditor may refuse your IVA and the steps you can take to either change their minds or finding an alternative solution to managing your debts.

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The offer is unrealistic or unreasonable and they suspect you’re being dishonest

When proposing an IVA, you should be doing your absolute best at addressing your unsecured debts and the repayments should be realistic and reasonable. Your creditors expect you to be open and honest about your current financial circumstances and how they arose as well as ensuring all information about your income, expenses, assets and liabilities are accurate and up to date. You need to make sure that your income and expenditure statement accurately reflects the reality of your financial situation instead of lying or exaggerating in an attempt to repay as little as possible.

You must not understate or omit any sources of income such as regular overtime. It’s also important that you don’t overstate your reasonable family living expenses in order to maximise income as if your creditors become suspicious of any information, they may become suspicious about the IVA proposal as a whole and therefore reject it. They may decide to give you a chance to clarify what may have been an innocent mistake by calling a meeting with you and your insolvency practitioner but they are not required to do so and may just reject your IVA proposal without providing a reason.

If you are cohabiting, any household expenses should be divided in a reasonable way between yourself and your partner, normally calculated pro-rata to your partner’s respective income. Your creditors will expect you to disclose your joint incomes, even if your partner has no financial troubles themselves.

The offer isn’t worth their while

If the estimated amount that you have arranged to pay back via the IVA is rather low, it may not be financially viable for the creditor to accept the agreement. For example, if the example, if the debt is £600 and the projected dividend in a five year IVA is 20p in the pound, the creditor can only expect £120 of the debt to be repaid over five years. With all the administrative costs on top of that, providing proof of debt as well as keeping the account open, it might not work out to be financially viable and therefore a creditor may reject the IVA.

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Other repayment options may be more beneficial to them

Your creditors will always want the best possible outcome for themselves, so if other repayment arrangements such as a debt management plan (DMP) might result in all creditors being repaid in full within a reasonable time period, they may reject your proposal for an IVA. This presents the question of how long is a ‘reasonable time period’? As most IVAs are between five to six years, we can assume that a reasonable time period for a DMP (in which the creditors are repaid in full) would be between six to ten years.

Often an IVA can be demonstrated to provide creditors with a more guaranteed frequency of repayment under stricter terms for the customer than are applied in a debt management plan.

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They deem your past behaviour to be unacceptable

Your creditors may reject your IVA proposal based on your actions in the past if they believe your IVA would be likely to fail because of it. For example, if you accrued lots of debts as a result of living a lavish but unsustainable lifestyle with no care for repaying back your debts at the time, then a creditor may worry that your past attitudes and behaviour would continue and therefore result in you not sticking to the agreement. Even in cases where you racked up debt because of an addiction such as gambling or substance abuse, you might first have to prove that you have taken action to recover (such as rehabilitation) and have remained in recovery for an acceptable amount of time to gain your creditors’ trust and have them accept your IVA.

Your creditor may already be in the process of securing the debt

If your creditor has already taken steps to recover the debt by obtaining a County Court Judgement (CCJ) against you and a charging order against your property, they may reject your IVA proposal. This is because a charging order turns an unsecured debt into a secured one, meaning they can take legal action against you and force you to repay in full. Once they have been granted a charging order, the IVA cannot overturn it, nor can it be included as part of your IVA repayment plan.

If you do have a charging order against your property, you will have to include this as part of your living expenses budget when setting up your IVA to ensure it is accounted for and that you can continue to pay it at the same time as completing your IVA.

HMRC is the creditor

If you are self-employed and owe money to HMRC then your offer of an IVA proposal may be rejected if you have a significant history of failing to comply in terms of marketing returns to HMRC or acting fraudulently. However, if your returns are accurate and up to date, it is possible for HMRC to accept your IVA proposal, so make sure you are diligently checking them for any mistakes and submitting them on time in order to increase your chances of acceptance.

I’ve tried everything and they still won’t agree, what now?

If you have taken all possible steps to encourage your creditors to agree to your IVA but they still won’t budge, we will give your the best advice for your circumstances as well as offering alternative services such as bankruptcy, Debt Management, administration orders, consolidation and Debt Relief Orders to help you take away the pressure of debt.

For more information about IVAs or our other services, visit our Tips & Advice or get in touch with a member of our team who will be happy to help. To find out if you’re eligible for an IVA, just answer a few questions here and one of our team will be in touch to discuss it with you.

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