IVA way puts 4,000 back in control of their lives

It's impossible to ignore the dark debt clouds gathering over UK consumers.

Thanks in part to the explosion in cheap credit, low interest rates and continuing failure of banks to share financial data, greater numbers of Britons have been getting hopelessly into debt.

Eighteen months ago, new rules were introduced allowing bankrupts to be discharged within just one year (rather than three, as before). Since then, more people than ever before have declared themselves bankrupt.

Around 80 per cent of personal bankruptcy cases now come from individuals who put themselves into bankruptcy, instead of being forced to do so by their creditors. According to figures from the Department of Trade and Industry, the three-month period from July to September this year was the worst quarter for personal insolvency on record, with 11,195 bankruptcies. Figures are up by 31 per cent on the same period last year.

Older consumers who have traditionally shunned debts will find this statistic shocking. But for many young graduates conditioned to expect a £12,000 debt on leaving university, bankruptcy represents a path to financial freedom.

"In April 2004, [part] of the Enterprise Act 2002 came into force, making it possible for a bankrupt to be discharged within a year," explains Danny Davis, head of the insolvency group at the law firm Mishcon de Reya. "This [has] led to a lot of people, particularly young people in their late 20s and early 30s, choosing to clear massive debts - credit cards and loans mostly - by declaring themselves bankrupt."

If you're not a homeowner and have no significant personal assets, then bankruptcy now makes it relatively easy to walk away from your debts.

Steve Treharne, head of personal insolvency at accountants KPMG says: "There are probably some young and irresponsible people who view bankruptcy as an easy option, but for the majority of people it is the solution to a problem that has become unbearable and needs to be addressed urgently."

The risks of bankruptcy have been well highlighted. Once declared bankrupt, you have to hand over all your assets, including bank account books, insurance policies and bank statements, and stop using any credit cards or bank accounts immediately.

You will not be able to obtain credit of £500 or more without warning the lender that you are a bankrupt - when higher rates of interest will usually be charged.

If you are a homeowner with equity in the property you could be forced to sell your home to release money to your creditors.

Your status as a bankrupt will also bar you from working in the financial services industry.

The good news is that your bankruptcy will end within 12 months and you will be discharged from all your debts. Currently the average bankrupt is discharged after eight months, but their problems won't end there.

Just as with consumer credit, getting a mortgage tends to be very difficult in these circumstances, with higher loan rates applied. Your credit reference will be marked for six years.

If bankruptcies are rising at a worrying rate, the number of people signing up for the main alternative to bankruptcy - the individual voluntary arrangement (IVA) - is soaring.

In the same July to September period, 4,199 IVAs were registered - nearly double the number in the same quarter last year.

IVAs carry less stigma than is attached to bankruptcy, but they still damage what remains of your credit status. Applicants make a formal arrangement (via a court with help from an insolvency practitioner, usually somebody who works for an accountant) with their creditors to pay a set proportion of their income each month.

Debts will be frozen so that no more interest or default fees can be added to the total. The agreed monthly sum is paid into a trust and supervised by the insolvency practitioner, whose fees are deducted from the amount paid to creditors. Insolvency practitioners generally charge £75 a month, and their charges should represent no more than 40 per cent of the total paid into the trust.

IVAs normally run for three to five years. After that, the debts are written off - even if they have not repaid them in full. But like bankruptcy, the arrangement will mark your credit reference for six years.

IVAs are often considered a better option than an alternative known as an "informal arrangement", where you arrange to repay a "compromise" sum to creditors. This is not legally binding and your creditors could change their mind and ask you to pay everything back at a later date.

For Mr Treharne, the surge in the number of IVAs is not a worrying trend, but rather a sign of a more responsible attitude developing among debtors.

"People are starting to take stock of their situation and seek help in repaying their debts rather than walking away," he insists. "Most people who are in debt want to repay what they owe, and IVAs offer a manageable way to do that."

The Government is now consulting on plans to introduce a faster, easier IVA called the SIVA, or Simple IVA. This is intended to encourage people to settle their debts and so ease their financial worries.

If you're in serious debt, your first port of call should be the Consumer Credit Counselling Service on 0800 138 1111; or the National Debtline on 0808 808 4000. Alternatively, visit your Citizens Advice Bureau; for your nearest office, go to www.adviceguide.org.uk

Personal insolvencies are at record levels, but one woman's story offers hope for those facing bankruptcy

Jayne Christie considered suicide as she struggled to hide her overspending and mounting debts from her husband. Now separated, she will soon be debt-free for the first time in five years.

"I was living beyond my means, spending to add a bit of sparkle to a relationship that was going nowhere," says Jayne, 33, from Birmingham.

She tried to save her marriage by paying for weekend breaks, romantic dinners and new clothes on credit. "I had two credit cards, a loan, an overdraft and owed money to several catalogue [companies]," she admits. "I was repaying only the minimum amount each month, and my £600-a-month salary was swallowed up by repayments, leaving me suffering severe depression. I was at rock bottom and considered suicide at one stage."

It was Jayne's doctor who advised her to seek help from her local Citizens Advice Bureau. By that time, her debts totalled £25,000.

"The adviser put me in touch with a debt advice company," she says. "They told me about individual voluntary arrangements [IVAs], and I'm now paying £250 a month for five years."

Jayne will have successfully completed her IVA next month, having repaid a total of £15,000.

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SThree: Experienced Recruitment Consultant

    £20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

    Recruitment Genius: Collections Agent

    £14000 - £16000 per annum: Recruitment Genius: This company was established in...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...

    Day In a Page

    Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

    Cameron lowered the flag for the dead king of Saudi Arabia...

    But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
    Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

    Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

    Humanity must be at the heart of politics, says Jeremy Corbyn
    Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

    Joe Biden's 'tease tour'

    Could the US Vice-President be testing the water for a presidential run?
    Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

    Britain's 24-hour culture

    With the 'leisured society' a distant dream we're working longer and less regular hours than ever
    Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

    The addictive nature of Diplomacy

    Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
    Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

    Fashion: Ooh, Lady Chatterley!

    Take inspiration from DH Lawrence's racy tome with equally racy underwear
    8 best children's clocks

    Tick-tock: 8 best children's clocks

    Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
    Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

    Charlie Austin: ‘If the move is not right, I’m not going’

    After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
    Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

    How Isis profits from destruction of antiquities

    Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
    Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

    'If we lose touch we’ll end up with two decades of the Tories'

    In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
    Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

    The Arab Spring reversed

    Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
    King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

    Academic claims King Arthur was real - and reveals where he lived

    Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
    Who is Oliver Bonas and how has he captured middle-class hearts?

    Who is Oliver Bonas?

    It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
    Earth has 'lost more than half its trees' since humans first started cutting them down

    Axe-wielding Man fells half the world’s trees – leaving us just 422 each

    However, the number of trees may be eight times higher than previously thought
    60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

    60 years of Scalextric

    Model cars are now stuffed with as much tech as real ones