Seeing Red charts IVA increase

Until relatively recently, people with serious personal debts often had no option but to declare themselves bankrupt. Today, thousands are tuning to IVAs in an attempt to deal with their debts in a simpler, less onerous way.

Sue Cox of Seeing Red, said: "We have seen an unprecedented rise in the number of people approaching us, asking to set up individual voluntary arrangements to stop their debts spiralling out of control."

IVAs are a legally binding contract by which debtors agree a repayment plan with their creditors. Interest on their debts is frozen, in exchange for the creditor paying back a set amount each month. They are attractive to many because they avoid the stigma and harsh penalties associated with bankruptcy, and often up to 75 per cent of a personal debt can be effectively written off under an IVA.

Government figures from the Insolvency Service show that more than 11,100 people took out IVAs in the past three months, an increase of more than a third on the first quarter of this year, and more than two-and-a-half times as many as the same quarter of last year. Cases of bankruptcy dropped by 3.3 per cent, to 14,915, in the three months to June.

Cox commented: "There's no doubt that more and more people are regarding IVAs as less punitive than bankruptcy, and a more attractive way of dealing with their debt. One of the big attractions is that an IVA usually allows people to keep their homes, whereas bankruptcy normally requires homeowners to sell up in order to pay off their debts. Other advantages of an IVA include the fact that you can still have a normal bank account."

Recent research by accountants KPMG, show that the average debt of those entering into an IVA is £60,000.

Typically, most people get into trouble with personal loans, credit card balances, and other forms of buy-now-pay-later, unsecured loans.

Seeing Red points out that IVAs are not a soft option and are not suitable for everyone. They are only available to people who owe a minimum of £15,000 to three or more lenders and who have a surplus income each month. They involve people being very disciplined and keep to agreed monthly payments for five years, before they can become debt free.

Currently, creditors have to agree to an IVA proposal, but there are government proposals in the pipeline for a streamlined IVA, which will enable borrowers who owe less than £30,000 to instigate an IVA, even if it is against the wishes of their creditors.