The Insolvency Service has released figures which show that nearly 88,000 Individual Voluntary Arrangements (IVAs) were registered in England and Wales in the course of 2022. This represents the highest figure since 1990, when records began.
So what are IVAs, why have they increased so much, and what might it mean for you as a creditor?
What Is an IVA?
Introduced in 1986, an IVA is a formal alternative to bankruptcy for either a sole trader or a consumer, under which a debtor may make arrangement with their creditors to make repayments at an affordable rate. This can be arranged at whatever level the parties agree on.
The arrangement normally lasts five years, although the debtor may be able to pay off the debts earlier. On the other hand, if they become unable to meet the repayments, the IVA can fail, leaving bankruptcy as the only practical option.
An IVA is widely seen as attractive, since it attracts less stigma. However, it will still affect the debtor’s credit rating, and it can take much longer to be free of it. A bankruptcy can, in many circumstances, be discharged in less than a year.
The Rise in IVAs
The rise in the number of IVAs certainly reflects the fact that people are struggling in difficult economic circumstances, but there may be other forces at work. This is the view of Richard Lane, Director of External Affairs and Operating Subsidiaries at StepChange.
“While IVA’s can be a good option for some,” he points out, “their continued rise in popularity is concerning given the urgent need for reform within the sector. Too often consumers seeking debt advice at a vulnerable time are being preyed upon by unscrupulous firms posing as debt advice charities and routed towards an IVA from a provider paying high referral fees.”
What Does This Mean for You?
Used correctly, an IVA can be beneficial for a creditor, as well as a debtor, although there are downsides, too. The obvious disadvantage is that it can take up to five years to receive whatever you’re going to get, whereas in a bankruptcy you’re paid as soon as assets can be liquidated. On the other hand, an IVA allows creditors input into arranging what they receive and when.
If you’re owed money by a debtor where there seems little hope of payment in the short term, the important thing is to find a means of receiving as much as possible as soon as is practical. If you can also find a way for the debtor to return to the status of a good customer, so much the better.
This will mean working with the debtor to come up with the best solution in the circumstances. I can help with these negotiations — and, if more expert advice is needed, I know a number of Insolvency Practitioners who’ll give good and impartial advice as to whether or not an IVA is the answer. Give me a call to find out more.