Using credit before an IVA

If you suspect that you may be insolvent, you might be considering entering into an IVA or even petitioning for your own bankruptcy. Certainly if you have been defaulting on repayments of unsecured loans and if you have only been able to make minimum payments on your credit cards or store cards, there is a good chance that you are indeed insolvent. One definition of insolvency is the ‘inability to repay your debts as and when they fall due’.

Some people who find themselves in this predicament are tempted to use all available credit to the maximum in one last mad splurge of spending before they look to enter into an IVA. They may have generous credit limits on one or more credit cards or store cards and they may have some unused credit available on their overdraft accounts. They might decide that they have nothing to lose by purchasing various goods and services up to their credit limits, a practice sometimes dubbed ‘maxing out credit cards’ and then to ‘look into’ entering an IVA.

IVA Credit CardIf you are in this predicament and are tempted to spend, spend, and spend – don’t do it! IVAs and bankruptcy are there to assist insolvent persons to get a grip on their finances and to become solvent again. They are not there as a solution for the reckless spending of insolvent persons. Such behaviour could be deemed to be fraudulent if done in the certain or even likely knowledge that you will ever be in a position to repay the debt in full. If you do engage in such behaviour and then offer proposals for an IVA to your creditors, they may well reject your proposal and if you were to petition for bankruptcy, the trustee in bankruptcy could seek to extend your bankruptcy term for up to fifteen years rather than the one year for most bankruptcies nowadays.

If you consult with any reputable Insolvency Practitioner or IP and they determine that you are insolvent, they will advise you to stop availing of credit immediately. That means that you stop using your overdraft and all your credit cards and store cards right away.