IVAs may be easier to come by, but that's not good news for everyone
Sunday 19 July 2009
Banks and other lenders are now relaxing their payment thresholds for individual voluntary arrangements (IVAs) and are approving lower-repayment applications for the first time, according to Debt Free Direct, a provider of IVAs.
Previously, only debtors able to commit to monthly payments of at least £200, paid over five years, were accepted, which is beyond the means of many people. In the past few months, though, creditors have agreed to hundreds of more flexible IVAs with monthly payments of under £200. With this apparent change in attitude, Debt Free Direct is now encouraging consumers who have previously been denied to re-apply, but is it a good idea?
The main IVA selling point, as an alternative to bankruptcy, is that debtors are able to reduce their debts to a single monthly payment and have a legally binding agreement to become debt-free upon completion of the arrangement. From the creditors' point of view they can claw back a proportion of what they are owed in a relatively short amount of time, and IVAs offer better returns for lenders than bankruptcies.
While lower monthly payments may be welcome to some debtors who would have been unable to meet a £200 payment, undertaking an IVA is an extremely serious step and there are considerable costs involved. "When people look at debt solutions they do tend to look at the monthly payments but that isn't the main figure to look at. It's about making an informed decision and knowing exactly how much it's going to cost," says Beccy Boden Wilks from the National Debtline.
An IVA involves setting up a fixed payment plan between the debtor and creditors. It must be arranged by a licensed insolvency practitioner who prepares a financial report for court proceedings. Provided 75 per cent of the creditors accept the proposal, the IVA is legally binding, interest is frozen on the debts and as long as all the terms of the arrangement are met, the payments will be considered a full settlement of debts. But there are costs. First, there is a fee, typically around £1,500, paid to the insolvency practitioner for setting up the IVA, which may need to be paid upfront. Afterwards, commissions are taken out of the monthly payments as ongoing supervisory fees, which significantly reduce the amount being put towards the debt. The monthly payments are fixed, which could spell trouble if a change in circumstance rendered payments beyond reach, and, during an IVA, the debtor is unable to take out credit cards or loans.
IVA providers also have a tainted reputation for aggressive marketing to people for whom it is not appropriate. The Consumer Credit Counselling Service (CCCS), recommends IVAs in a mere 2 or 3 per cent of cases. Despite this, in the first three months of 2009 the number of IVAs hit the 10,713 mark, an increase of 11.8 per cent on the same quarter of 2008, according to statistics from The Insolvency Service. If lower monthly payments trigger growth in the market there is a risk that more people will be persuaded to take one up. "It is possible that clients who did not previously qualify for an IVA, but who now do so, may be pushed into entering an IVA when it is not the best option for them," says Tom Howard from the CCCS.
- 1 Howard Jacobson: Let's see the 'criticism' of Israel for what it really is
- 3 Do you know this man? Amnesia sufferer found in park pleads for help in identifying who he is
- 4 PornHub begs users to stop uploading video clips of Brazil getting beaten 7-1
Sustained immigration has not harmed Britons' employment, say government advisers
British jihadist calls for 'flag of Islam' over Downing Street and Buckingham Palace
Australia facing international condemnation after turning around Sri Lankans at sea
7/7 memorial defaced on anniversary of 2005 attacks with ‘Blair lied thousands died’ graffiti
Even when it brutalises one of its own teenage citizens, America is helpless against Israel
There’s a nasty smell in the political air – and it’s coming from the Tories
iJobs Money & Business
£30000 per annum: Harrington Starr: A global leader in trading platforms and e...
£28000 per annum: Harrington Starr: A fast growing consultancy to the financia...
£30000 per annum: Harrington Starr: Technical Support Analyst - Liverpool Stre...
£65000 per annum: Harrington Starr: One of the world's largest privately owned...
Day In a Page
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar
A newly refurbished one-bedroom flat in the heart of Mayfair, close to Grosvenor Square
A charming four-bedroom house overlooking Burleigh Square Park, close to Thorpe Bay