When will I stop paying my creditors?
Knowing when to stop paying your creditors is crucial because, if you stop too early, you'll endure a longer period of being exposed to potential creditor actions than necessary and it's all a question of trying to minimise your exposure.
Some debt management providers will tell you to stop paying creditors straightaway, but is this in your best interests?
Protect Yourself Against Bad Advice
If you approach a Debt Management company when applying for an IVA, it's likely they'll tell you to stop paying your creditors immediately.
The chances are they'll have a rather ugly motive for giving you this instruction. They want you to pay them an administration fee or set-up fee for their involvement in setting up your IVA.
They know it's not possible for you to pay both their fee and your creditors at the same time, that's why they'll instruct you to stop payments to your creditors.
They'll probably tell you that they'll be in discussions with your creditors so you're safe from any action but, often, this won't be the case. They'll actually resist working on your case until you have made your first 2 payments and their fees have been paid. Only then will they start the IVA application process for you.
So be warned, the payment of 'administration' or 'set-up fees' is unnecessary and should be avoided if possible.
Check out the My IVA Adviser 'No IVA - No Fee' policy.
So when should you stop payments?
When you stop paying your creditors you'll be making them aware of your financial problems, that is if they weren't aware already, which will give them cause to react - normally with a barrage of phone calls.
To avoid being exposed to this reaction you'll need to minimise the gap between stopping your payments and entering into your IVA, as you only become fully protected from your creditors once they've voted to accept your IVA at the Creditors' Meeting.
If possible, it's best to keep up your payments right up to the date your Creditors' Meeting is set, about 2 weeks from the actual meeting itself, which will minimise your exposure to the shortest period possible.
Offering token payments
If you simply can't maintain your payments any longer, the next best policy is to try to placate your creditors by offering those that contact you a 'token payment'. This will help to keep creditors that contact you at bay whilst your IVA is being prepared.
Token payments are so called because they act as a token gesture whilst you're waiting for the IVA to be accepted.
Creditors recognise the offer of token payments as it show a willingness to contribute to a debt, even when a full payment is not possible. Appeasing your creditors in this way can significantly reduce the volume of calls that you'd otherwise expect.
Professional IVA advice
If you're considering entering an IVA and you're looking for further support, please take a look at this article on how to recognise the best IVA company.
The team behind My IVA Adviser are IVA specialists and have been assisting people enter IVAs for many years. To have a chat with one of the team please call 0800 088 7503, or alternatively, complete this form and someone will contact you at your preferred time.
A little bit of history
Historically it was normal practice to be instructed by the Insolvency Practitioner (IP) to stop making payments to creditors with immediate effect.
This used to be one of the first instructions the IP used to give and there were two main reasons for this approach.
- Stopped further deterioration.
In most circumstances, the IVA applicant's financial problems would have been worsening each month due to their unaffordable repayments. The IP wouldn't have wanted the situation to worsen any further.
- Stopped preferential treatment.
The IP has to be seen to be acting fairly to all parties, including the creditors. If one creditor continued to receive repayments then another creditor could have alleged the IP was showing a preference.
The IP would have instructed the IVA applicant to make contributions towards the 'IVA fund' during the interim stages of the application process, with these payments forming part of the IVA once the IVA had been accepted.
Using this technique would have enabled the IP to demonstrate two further things to creditors. Firstly, that the IVA applicant was able to afford the payments, since they had already begun paying, and secondly, they could claim the payments showed the willingness to reach an agreement - thus strengthening the application.