Tag Archives: IVA

IVAs – new figures out next month

Next month, the Insolvency Service will publish its latest figures, revealing how many new insolvency cases began in the third quarter of 2010.

The term ‘insolvencies’, of course, doesn’t just apply to IVAs (Individual Voluntary Arrangements).

It applies to bankruptcies, IVAs, Protected Trust Deeds and DROs (Debt Relief Orders), since the Insolvency Service provides statistics for all four of the countries in the UK: England, Wales, Scotland and Northern Ireland.

* In England and Wales, people with serious debt problems may be able to enter bankruptcy, an IVA or a DRO.

* In Scotland, bankruptcy is often called sequestration, and IVAs don’t exist at all – although Scottish residents may be able to enter a Trust Deed (which is similar to an IVA in many ways) if they’re in financial trouble and can’t repay their debts.

* In Northern Ireland, IVAs and bankruptcy exist, but DROs have not been introduced (so far).

Third-quarter IVA figures
On 5th November, we’ll see how many people ended up entering insolvency between July and September this year.

Looking just at England and Wales, the figures for the second quarter of 2010 were unusual in quite a few ways:

* The number of IVAs hit an all-time high of 13,466 – an increase of 14% on the 11,782 IVAs that began in the first quarter of the year.

* The number of DROs also hit an all-time high (although this isn’t as significant as it is with IVAs, as this was only the fifth quarter since DROs were introduced). In Q2, there were 6,295 DROs – a 12% increase on the previous quarter and a massive 218% increase on the second quarter of 2009 (when they were introduced).

* The number of bankruptcies actually dropped in Q2, to 14,982. In fact, we saw fewer bankruptcies than we’ve seen in any quarter since the end of 2007.

* Thanks to the fall in bankruptcies, the total number of insolvencies in England and Wales dropped to 34,743 – not just lower than the 35,682 in the previous quarter, but lower than in either of the two quarters before that. This was the first quarter since the end of 2007 in which the number of bankruptcies didn’t increase on a quarterly basis.

A note from the IVA Forum

An expert at the IVA Forum commented: “It’s important not to forget R3’s warning about ‘insolvency lag’ – the fact that there’s usually a gap between the end of a recession and the peak in numbers of people (and companies) entering insolvency. As we deal with the after-effects of the recent recession, it’s likely we’ll see a great many people entering an IVA, a DRO or bankruptcy as a result of problems that have been affecting them for some time.”

Ways To Be Debt Free Without Bankruptcy

It can be frighteningly easy to get into debt, as many millions of people have found to their cost over the last few years. Easy access to cheap credit over the last decade or so, along with a generational shift in attitudes to borrowing, has left huge numbers of people struggling to get by and keep their debt repayments on track.

Of course, the unhappy fact is that for some people their debt problems are simply too pressing and no solution can be realistically found, and for these unfortunate people bankruptcy is often the only option.

However, there are ways to get debt free without resorting to such drastic action, although none of them are quick or easy, no matter what the abundance of advertisements may insist.

The most common method of dealing with debts is to take out a consolidation loan. The basic strategy is to take out enough cheap credit to pay off your existing more expensive debts, leaving you to concentrate on repaying this single new debt, for which you should be having to pay less each month than the total of your previous repayments. Obviously, this is not a quick route to being debt free, especially if your loan was taken out over a long term, but it’s a popular way to relieve the pressure of unaffordable debts. So long as you stick to the repayments, and avoid racking up additional debt, you will (eventually) clear your debt.

A more proactive way of clearing your debts is to use the snowball method, where you determine to make the minimum repayments on all your debts each month, with any extra cash left over being concentrated on repaying just one of your debts. Once this single debt is cleared, you transfer your previous minimum repayment on it to the next debt in the line, as well as keeping up the repayments you’ve been making all along. Once this debt is cleared, you transfer the entire repayment onto the next one, and so on down the line.

The beauty of this method is that your total monthly debt payments will stay the same, but the power of your repayments will grow and grow as your debt gets smaller, and you also have the encouragement of seeing your debts get cleared one by one.

A more drastic move is to enter into a debt management program. This is basically an admission that you can’t cope with your debts, and a plea for negotiation with your creditors. You should be able to come to some sort of arrangement to spread your debts over a longer term, reduce the interest rate you’re being charged, or otherwise ease the burden by restructuring your finances. You can either take this process on yourself, or consult a debt charity or debt management agency who will handle it for you.

The final option is known as an IVA or Individual Voluntary Arrangement, which is actually a form of insolvency. It is in some ways similar to a debt management program in that you negotiate a new repayment deal with your creditors, but the crucial difference is that your new agreement is legally binding and must be signed off by a judge.

Under an IVA, you don’t necessarily have to clear all of your debt, but so long as you stick to the agreement you’ve made in court, any remaining debt will be written off after the five year term of the IVA. Although this is one of the fastest methods of becoming debt free, it’s not a trivial course to take and will impact on your financial future from many, many years, not least through the near destruction of your credit rating.

IVA and other debt solution options

An Individual Voluntary Arrangement is a good debt solution in the right circumstances. The Individual Voluntary Arrangement option has however been heavily marketed leading some members of the public to be naturally less aware of the alternatives to an Individual Voluntary Arrangement. In many circumstances these options might be a much better fit for their needs and circumstances.

The many options available can cause more confusion and concern for those who are in debt. Therefore by just knowing of these additional options is not enough.

Throughout this article we will try to explain about some of the important facts and figures that debt advisers look for when working to establish the best debt resolution options for their client. The content is not appropriate for residents of Scotland; they have a different but comparable list of options to choose between.

Your total level of unsecured debt is effective to a debt adviser. Unsecured debts are things like credit cards, store cards, bank loans and overdraft facilities. Secured debts in contrast are tied to an item of value such as your mortgage or hire purchase on a car. Historically the figure of 15000 has been quoted by IVA companies as being the minimum for an Individual Voluntary Arrangement though in more current times some Individual Voluntary Arrangement providers have been prepared to look at lower debt totals.

If your debts are below 15000 you may need to turn your attention to the options of a debt relief order, bankruptcy or a debt management plan.

Your assets matter to debt advisors as well. Assets can include the equity in your property or a vehicle that is owned by you without owing anything for the vehicle.If your assets add up to more than your unsecured debt, the IVA and debt relief order will not be suitable or available, however there are some exceptions. Bankruptcy is likely to threaten the assets themselves, this is why a lot will look at other options such as selling the assets themselves or rescheduling repayments through a debt management plan.

If your level of assets is lower than your amount of unsecured personal debt you may find that an Individual Voluntary Arrangement is worthy of further consideration. You should be aware that you may be required, if it is possible, to release some of this equity for the benefit of your creditors. Anyhow safeguards are built into this procedure that should mean your home is safe assuming that you keep up with your mortgage and IVA payments monthly.

Assessing your ability to make payments towards your debts each month is also necessary for a debt or Individual Voluntary Arrangement adviser. Should it be the case that less or no affordability for such a payment exists it should alert you to the possibilities of bankruptcy or a debt relief order. If any inability to make monthly payments is temporary in nature, the option of making “token payments” for a period may help you to get back into a position where the other options become available later

If the amount you can afford to pay each month is substantial it may mean that creditors will not allow an Individual Voluntary Arrangement to be agreed. This could be the case if it is apparent that your debts could be paid back in a period very much alike to that generally involved in an IVA. In such circumstances a debt management plan may help debts to be rescheduled to allow affordably and fully repaying the debts within a realistic timescale.

Where a practical monthly payment is affordable (a sum of ?150 per month and upwards perhaps), you should look at how long a debt management plan would take to deal with the debts that you have. If it is excessive an Individual Voluntary Arrangement may represent an agreement that will enable your creditors to accomplish a part-settlement and assign you to get back on your financial feet within a few years. In these circumstances bankruptcy will also be an option for you which could potentially have a shorter payment term than an IVA. However homeowners and certain professionals may feel that an IVA offers them greater protections.

Another factor to be contemplated on for debt advisors is the kind of employment the client is in. Insolvency (a bankruptcy, IVA or DRO) may create issues for professionals like accountants who rely on memberships of professional bodies. Police officers and members of the armed forces may need to adhere to certain procedures prior to selecting any of the options. People who have a job in the financial services sector and their role involves cash handling should check their employment contracts.These restrictions do not apply to informal debt management options.