Let’s talk about Individual Voluntary Arrangements (IVAs) — Part one
I was recently invited to participate in a panel discussion at the Insolvency Practitioners Association’s (IPA) 2022 Personal Insolvency Conference, which was held in Manchester on 24th November. The session was called: IVAs: Busting the Myths. In this blog, I will raise the concerns that I and many other not-for-profit debt advisers have about IVAs, which I thought about a lot in the days running up to the conference. But let’s start with the IPA.
The IPA is the largest of the four Recognised Professional Bodies under the Insolvency Act 1986, for the authorisation and regulation of Insolvency Practitioners in the UK. Read more about the organisation here.
The IPA introduced a new regulatory regime in 2019 for volume providers of IVAs in response to a significant increase in the number of IVAs being registered. This has been of concern to debt advisers for quite some time, as we inevitably see an increase in the number of people approaching us for help with IVAs which appear to have been ‘mis-sold’ and who, as a result, have found themselves unable to manage financially; some borrowing more to meet their IVA payments, some stopping paying the rent and other priority bills in the mistaken belief that the consequences of not paying the IVA are more serious.
The cost of living crisis currently engulfing all of us, is also having a negative impact. What may have seemed affordable 1 or 2 years ago may no longer be so as disposable incomes diminish. These aren’t the typical changes in circumstances that affect long-term debt payment schemes like IVAs and debt management plans (DMPs), such as losing income due to ill health or redundancy, it’s just that the cost of merely ‘getting by’ is now so much higher than it used to be.
During my time as a debt adviser, I — like so many of my colleagues in debt advice — have seen clients really struggling with their IVAs. Some have been terminated by the time they come to see me and are back to square one, some have stopped paying and are waiting for the inevitable ‘failure’, some are in dire financial circumstances but are still trying to keep their IVAs going.
This chart — also from the IPA’s VPR report — shows the income breakdown of 112 failed IVAs which their Scheme Inspectors reviewed, followed by the monthly contribution.
Following their review, the Inspectors found that:
Out of the total 112 IVA cases reviewed, 4 cases have been identified where the Inspectors consider that the failure could be attributed to poor advice.
In 2021, one of my clients took part in a documentary called ‘IVAs: Britain’s next misselling scandal?’ which highlighted the destructive impact of IVAs on people for whom the solution appeared to be entirely inappropriate. Watch the documentary here.
The comments below the video are also telling:
How big a problem are IVAs? If personal insolvency can be considered as a ‘market’ then IVAs are occupying a large space. The Insolvency Service says that following the change in Debt Relief Order (DRO) eligibility criteria in June 2021, DRO numbers increased and for the past year have been stable although slightly below pre-pandemic levels. Bankruptcies appear to be tracking downwards from early 2020. IVA numbers as you can see in the graph below, are bucking these trends.
Insolvency statistics, England and Wales, October 2019 to October 2022:
The Insolvency Service states that:
‘…there were, on average, 7,610 IVAs registered per month in the three-month period ending October 2022, 8% higher than for the three-month period ending October 2021 and 13% higher than the three-months ending October 2019.’
Compare those figures to the 1894 DROs (25% lower than October 2019) and 531 bankruptcies (62% lower than October 2019) in October 2022 (England & Wales).
So what’s going on?
I was asked to put together a short presentation for the IPA Conference, but in the end, they decided not to use it. It seems a shame to let those 2 slides go to waste:
This slide shows a collection of adverts on social media, promising varying high percentages of debt ‘write offs’ possible, although, strangely, very few of these adverts actually state that this is via an IVA. Why is this?
The second slide features comments on social media, including my own, from frustrated debt advisers citing a suicidal client, a client about to be evicted for non-payment of rent, a client given 2 hours to make a decision about entering an IVA or her Breathing Space would be terminated, among others.
While I have to acknowledge that non-profit/charity debt advisers are unlikely to hear about all the successful IVAs, (22,397 completed successfully in 2021), these shocking stories paint an awful picture of the IVA industry. According to the IPA’s own figures, roughly a third of all IVAs registered fail. Their 2021 Volume Provider Regulation (VPR) Benchmark report finds that in December 2021 13.69% of IVAs that failed were in their first year, but years 2 and 3 see the most failures.
Before attending the conference, I asked debt advisers on Twitter for any IVA myths that they thought needed ‘busting’. One asked me about creditor returns. In 2021, £185million was distributed to creditors. The figure has been increasing year on year since the VPR report was established in 2019.
Not so much a myth but an absolute mystery to me was the effect of an IVA on a person’s home. I was aware of the requirement for homeowners to try to release equity in the final year, and if unable to do so, for the term of the IVA to be extended by 12 months. However, a few years ago, a colleague encountered a client who had completed their IVA many years prior. The client was in the process of selling their house, when it came to light that the IVA company had retained a charge on the property and were demanding approximately £11,000 from the sale. The client had thought the IVA done and dusted, but it wasn’t the case.
So this is an interesting section of the VPR report:
In 2021 the Insolvency Service published a new Straight Forward Consumer IVA Protocol (replacing the 2016 version) which:
‘…intended to facilitate the efficient processing and administration of consumer individual voluntary arrangements (IVAs), recognising the need to balance the rights of an individual to obtain appropriate debt relief alongside the rights of creditors to seek repayment of what is owed to them.’
Annex 5 — the Equity Flow Chart for all homeowner cases can be downloaded from R3.org.uk
I met a client a few weeks ago who I saw as an emergency due to the threat of imminent eviction by their Housing Association. They had rent arrears of over £3000 and Council Tax arrears of approximately £10,000. They had, had a terrible couple of years — emerging from a violent and abusive relationship which saw their ex-partner sent to prison, succumbing to Covid several times and suffering a long period of sickness which saw them lose their employment, and the inevitable deterioration in their mental health as they struggled to manage emotionally and financially.
As we went through their income and expenditure, they mentioned a payment of £90 per month to ‘debts’, although admitted they hadn’t been able to afford to pay it for months.
This turned out to be an IVA, taken out in March 2022, at a time when the client’s only income was Statutory Sick Pay. The client managed to make 2 payments (March and April) and then gave up. The rent and Council Tax arrears were not included in the IVA.
This is now the subject of a formal complaint with the insolvency company and I am awaiting the outcome of their investigation. For now, we have managed to avoid the eviction and we have temporarily stopped enforcement action from the Council Tax bailiffs.
A few days before the conference, I received some pointers on how the panel discussion would be presented. One of the discussion points was this:
‘Failure rates and why cases fail. It isn’t an indicator of poor debt advice. Most will be just life changes.’
The other members of the panel were Ken Marland, (Partner, Harrison Business Rescue), Paul Mason, (Creditfix CEO) and Laura Prescott, (Debt Movement CEO). Paul Mason attended a Greater Manchester Money Advice Group online meeting on 9th September 2021; we discussed the problem of ‘introducers’, of misleading advertising and ‘mis-selling’ and he took many questions from our delegates, which was a lively discussion! — you can watch the video of the discussion here.
Following this, a few of our Money Advice Group members met with Creditfix to continue the discussion and I have to say the conversations were productive and Creditfix were transparent with us about their processes, their financial assessments and their fees. They seemed earnest in wanting to raise standards and wanting to show us that they were listening to our concerns, which was appreciated. Paul Mason has always stated that we can raise concerns over our clients’ Creditfix IVAs with him directly — contact paul.mason@creditfix.co.uk
So this is the background, and in the next part of this blog, I will share what I learned from the day at the IPA conference and how the panel session went.
Thanks for reading so far and feedback welcome!
