Drop in IVAs not due to drop in demand

Increasing numbers of IVA applications are being rejected by creditors who are tightening their criteria in an attempt to shore up their own dwindling reserves, says Terry Balfour of IVA comparison site IVA.com.

According to official quarterly figures from the Insolvency Service, the number of successful IVA applications has fallen by 3.2% on the previous quarter and 12.4 per cent on the same time last year – but IVA.com does not believe this is due to a lack of demand by debtors.

“Many of the insolvency practitioners we speak to on a daily basis are saying that despite putting forward their clients’ best offers which comply with this year’s new IVA protocol, a growing number of creditors are asking for more modifications, which are impossible for the debtor to manage,” says Balfour.

“As a result, the only choice left for many people is the less restrictive option of a Debt Management Plan which doesn’t need to be approved by the courts and is quicker and easier to achieve.”

But the number of people going down this route is not included in the official figures, which means the real scenario of the UK’s debt problem is somewhat different.

“However, with the comparative ease of successfully organising a DMP comes an increased risk of failure,” says Balfour.

“Creditors are not obliged to stick to the agreement and can increase their demands should they wish, which just perpetuates the problem. A DMP can also last for years, putting the chance of making a fresh start that much further out of reach.

“We are also being told by our callers that they are loathe to jump one way or the other until the economy settles down. Making the decision to take on an IVA or go bankrupt is a major one and they would rather battle on until they can’t hold out any longer.

“There’s been a lot of talk about the credit crunch over the past year but I would say it’s only now that the effects are really hitting their target and ordinary people are taking the blows,” Balfour adds.

“From what we are told by the IPs we work with and the people in serious debt who call us for help, the fall-out from the current financial climate will be felt for quite some time to come.

“You can’t jam the brakes on the runaway train of borrowing and spending that the UK has been riding for the past few years without serious damage occurring – and that’s what is happening now.

“The most important thing to remember is that no problem is insurmountable and the industry that has been built up around the UK debt problem is there to help.”