IVA & Debt Consolidation Advice

All across Britain debt is spiralling with many borrowers unable to afford their repayments. Just this year 17,000 filed for insolvency. According to the Insolvency Advisory Service, people are seeking debt relief through bankruptcy at younger ages with debts that are becoming increasingly larger.

During the first three months of 2007, 17,000 filed bankruptcy, which is an increase of ten per cent over 2006 figures, thus adding to the 100,000 individual insolvencies that were filed in England and Wales.

Gill Hankey of the Bankruptcy Advisory Service says the she recently met with a 21 year old client who was seeking help for credit card debts of £35,000 and is just one of many such cases that the bureau has on its books. They also saw a client with an income of £900 a month who had 17 credit cards and another who had filed bankruptcy and was about to borrow £80,000 on credit cards. Hankey says that cases like this show that lenders are failing to conduct proper checks before approving credit cards and loans.

High Street banks and credit card issuers have taken an increasingly tougher line on debtors. Recent government figures showed that county court judgments were higher than they have been in ten years, with 70 per cent of those judgments related to consumer loan and credit card debt. Lenders are quicker to use the court system to deal with debtors who have unsecured obligations, and the seriousness of these figures are a warning to borrowers that not only are their credit ratings at risk but also further legal action is not very far down the road.

Debt advice agencies report they are seeing an increase in the number of clients who have tried not to file bankruptcy, but are struggling with Individual Voluntary Arrangements (IVAs) with payment plans they can ill afford. Under an IVA, a debtor makes monthly payments over five years in exchange for the creditor agreeing to write off a portion of the debt. The IVA company charges a fee for their services, which is deducted from the repayments, usually about £7,500. Some people are making payments of 45 per cent of their take home pay on IVAs, which leaves them with very little left on which to live and take care of their families. These repayment plans are not affordable, and many people begin to struggle after making only one or two payments, so they end up doing what they had tried to avoid, filing bankruptcy.

Both the Consumers Credit Counselling Service and National Debtline, a telephone helpline for people who need debt advice, have said their experience shows a similar trend and that there is likely an issue with recommending people for IVAs who should clearly never have been recommended for the program.

For many people who have a large debt load without available income to pay them, bankruptcy may be a more realistic option than an IVA according to Sue Edwards, a senior policy officer for Citizen's Advice.

Debtsolver have written an article on the pros and cons of an IVA versus bankruptcy.

It’s only a general guide though, and people facing insolvency are urged to seek professional debt advice.