Individual Voluntary Arrangements (IVAs) and Debt Advice
With the rise of the cost of living in the UK, desperate people are looking for ways to survive their debt. This makes them vulnerable to predatory debt management companies who seek to profit from them.
What is an IVA?
An Individual Voluntary Arrangement (IVA) is an agreement made between a person in debt and their creditors to pay back their debts over a period of time. This is usually done to protect a persons assets, such as their home, and to consolidate all of their debts into one monthly payment which they agree to pay over the course of a few years. A person in an IVA agreement can expect their creditors to stop chasing them, the interest on their debts to be frozen, and any remaining debts to be written off once their agreement has come to an end.
Where does it go wrong?
For people who are financially secure and are able to stick to their payment plan, an IVA can be a suitable option, but for those who are unable to promise a steady income and reliable financial stability in the oncoming years, it can spell disaster. When a client is unable to make their repayment and their IVA fails, a clients’ debts can be the same as before the agreement regardless of how much they paid through the IVA.
“Figures show that typically, over the course of an IVA, 25-42% of them fail.”
Debt management companies negotiate IVAs while charging a fee for their services and many of these fees are over half the amount paid monthly by their clients. In other words, most of the money paid through an IVA doesn’t go to the creditors.
BBC’s Panorama episode ‘Debt: Who’s Cashing In?’ features an investigation into the tactics used by these companies to push IVAs onto clients who are unsuitable for them, increasing their debt troubles in the long run. They utilise marketing tactics through social media influencers and online social groups targeting vulnerable demographics in order to funnel more clients towards their business.
Our report - Set up to fail: How the broken IVA market is failing people in debt distress - revealed that:
73% of people who are or have been in an IVA struggled to make repayments
46% had to cut back on everyday essentials like food and heating to make their IVA payments
39% said their IVA has had a negative impact on their debt levels
32% said they had to borrow money to make their IVA payments
What can you do?
Those who are mis-sold an IVA are often applicable for a Debt Relief Order (DRO). A DRO costs one payment of £90, which can be split into separate payments if required, and paid directly to the Insolvency Service which is a government department for people struggling with debt. At the end of your debt relief order period, you are free from the debts that are listed in it, except any which you obtained by fraud. Compared to the thousands of pounds a desperate individual can lose to a debt management company, this can mean the difference between living in poverty and staying afloat.
If you think a debt relief order could be an option for you, we have all the information you might need on our website. If you are struggling with debt, we recommend speaking to our trained debt specialists who will be able to give you free, impartial and confidential advice. You can get in contact with them through our Debt & Money Services page.
