Figures published by the Insolvency Service in February 2014 showed that there had been a 5% increase in the number of people starting an IVA during 2013 compared to the previous year.
This was the first increase in IVAs since 2010. It is against the backdrop of an overall fall in the number of people who became officially insolvent. By comparison the number of people who went bankrupt fell by approximately 23%.
Want help to start an IVA?
Give us a call: 0800 011 4712 or complete the form below to speak to one of our experts
Why did more people Start an IVA during 2013?
So why are more people starting an IVA? It is likely that there are two significant reasons. Firstly over the past 12-18 months the entry criteria have relaxed. During 2013 the level of unsecured debt required to use the solution fell from around £10,000 to as little as £6000.
As a result people with lower debts have been able to consider this option. On top of this the amount you need to be able to pay into the Arrangement each month has also fallen.
The minimum monthly payment required has now reduced from a minimum of £150 a month to £100. Some IVA companies are taking on clients who are only able to pay £80 a month.
The criteria to start an IVA have relaxed. As a result the solution has become an option for many more people.
Is Bankruptcy too expensive?
Despite its reputation Bankruptcy can be ideal for resolving a personal debt problem. This is particularly the case for individuals who do not own their own home.
However a significant issue with the solution in England and Wales is the cost. In order to go bankrupt you must be able to pay an up front fee (currently £680). Arguably this is preventing people from taking up the Bankruptcy option and forcing more to start an IVA.
For those on very low incomes there is the alternative of a Debt relief Order. However the strict threshold criteria often prevent this option from being taken up.
With no upfront fees payable the IVA offers almost immediate relief from creditor collection activities. This is therefore seen as a more feasible option than Bankruptcy where a significant fee is required.
Are lower threshold IVAs a good thing?
There is nothing wrong with an IVA based on monthly payments of £100 or less as long as these can be sustained. However if circumstances change for the worse there is little flexibility to maintain the Arrangement.
Generall speaking if an individual’s income falls during an IVA the problem of maintaining the payments can be resolved by reducing them and extending the number paid. However where they are already less than £100/mth reducing the amount any further is generally be impossible. As a result the Arrangement may fail.
The other consideration is that IVA payments must be sustained for 5-6 years. In Bankruptcy they are only required for 3 years. Where there is no surplus income no ongoing payments are required at all. Given this avoiding Bankruptcy and opting for an IVA because there is no up front fee is a false economy.
During the course of an IVA it is likely an individual will have to pay considerably more towards their debt than if they had gone Bankrupt.