Sam Dunn: IVAs are the new face of debt, but they mask an age-old truth

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The Independent Online

The rise is meteoric, the numbers gobsmacking and its popularity breathtaking.

But the star of this show is not a hot new author, playwright or musician - it's the individual voluntary arrangement (IVA). Designed to help wipe out personal debts, it has gained a high profile over the past few months, and no wonder - the IVA has proved a contentious tonic for tens of thousands of indebted Britons.

Entering into an IVA has, so far, remained a less popular alternative to bankruptcy, which wipes out pretty much all debt, excluding student loans. By contrast, IVA applicants make a formal arrangement with their creditors via a debt relief company to pay back a portion of their overall debt - usually around 40 per cent.

After three to five years, the debts are written off, although your credit record will be stained for six years.

But figures released on Friday by the Government's Insolvency Service revealed that the gap between IVAs and bankruptcy is closing. The latest gloomy statistics showed there were 12,228 IVAs and 15,416 bankruptcies in the three months to the end of September.

Overall, that makes 27,644 individual insolvencies - a 55 per cent rise on the same period last year. That in itself is alarming, but the jump in IVAs is even more dramatic: in the same three months in 2005 only 5,611 IVAs were recorded. That means they are up by 118 per cent, compared with a relatively modest 27 per cent rise in bankruptcies.

But the backlash has started already. The banks - which pay fees to debt "reduction" agencies, or companies that administer IVAs on behalf of consumers - are warning of the danger of unregulated advisers making too many recommendations for IVAs.

Indeed, the profitability of such companies is attracting investor interest. Debt Free Direct reported a 91 per cent rise in turnover last week, while Accuma posted a £1.9m operating profit for its financial year - up from a previous loss of nearly half a million pounds.

Consumer debt charities have begun to shout louder, too. In its report Trouble Totals, published last week, the Consumer Credit Counselling Service (CCCS) says it recommends IVAs only in 3 per cent of consumer debt cases.

It was a "matter of concern", it said, that IVAs would soon outnumber bankruptcies, since its own statistics suggested that the latter were much more suitable for many people.

However, it's worth pointing out that the CCCS is soon to set up its own "not-for-profit" IVA arm, and it's likely that it too will report high take-up figures.

So who's really to blame for the rise of the IVA? The CCCS points to TV advertising; consumer bodies to lenders and their failure to apply sufficiently strict criteria when deciding who should get credit; lenders to the debt management companies.

It's easy to lose sight of the individual amid all this recrimination, but it's worth remembering that we do each have a responsibility for our own actions.

Today's mess is a painful reminder of that.

Pensions in the dock

On Friday, the Government formally rejected a call from the Public Administration Select Committee to compensate up to 125,000 workers who lost final salary pensions when their companies folded.

This second snub follows one given earlier this year by the Government to the Parliamentary Ombudsman, which had accused it of maladministration over the issue. So now to court.

The Pensions Action Group, led by the redoubtable Ros Altmann, will take its case to the High Court in February. This time, under razor-sharp legal probing, I don't think the Government will find it so easy to thumb its nose.

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