There is a lot of perception that IVAs are a scam and are not a legislated scheme. Well to bring some clarity, here is a brief overview and history of IVAs, and how they became one of the most popular debt solutions in the UK.
A Brief History of IVAs
In the 19th century debt was rather more public. Around 10,000 people were imprisoned each year in debtors’ prisons, where you would stay until you could pay off your debt. As few had the resources to do that, they would be required to work to pay their creditors – and pay for their upkeep. Bankruptcy had been an option for centuries, but not for the working class.
Things began to change in 1869 with the Debtors Act, which reduced the powers of the court to imprison people for debt. Despite this and an initial drop in the prison population, numbers continued to increase into the 20th century.
When were IVAs introduced by the government?
Insolvency law changed only very gradually over the following century. Bankruptcy rules were relaxed a little, so you no longer needed to be a member of the merchant class or above to take advantage of it, but bankruptcy remained largely the only solution for people and companies facing unmanageable debt.
This became an increasing problem. Bankruptcy was, and to a large extent remains, the ‘nuclear option’. For individuals it meant (and often still means) losing your home. For companies, it meant they had to cease trading.
In the recession of the late 1970s and early 1980s, with millions out of work, high inflation and a stream of business closures, the government needed to find an alternative way for businesses to manage their debts in a way that didn’t result in closure. It wasn’t just the debt-laden businesses that needed help. Bankruptcy left very little for creditors too, so a solution was sought that would benefit both parties.
The result was the Insolvency Act 1986, which introduced the Individual Voluntary Arrangement (IVA) to England and Wales for the first time.
Benefits of early IVAs
The first IVAs were intended as a solution for businesses only and proved highly successful. Compared to bankruptcy they offered several significant advantages:
- No closure: The company was able to continue trading, ensuring no or fewer jobs were lost, and giving the company a fighting chance of recovery
- Debt write-off: The company’s unmanageable debts could be written off, freeing the business from hefty interest payments and a debt spiral
- More for creditors: Although they would still lose money in an IVA, creditors would lose less than in bankruptcy
When did IVAs become available to individuals?
Individual IVAs appeared in the late 1990s fuelled by the boom in consumer credit. Take up was slow initially – fewer than 5,000 were granted in 1998. But by 2006 numbers had exploded to 44,300.
Will anyone know about my IVA?
Today, your insolvency is likely to pass unnoticed by virtually everyone who knows you unless you tell them. Yes, your IVA will be placed on the Insolvency Register, but you have to work pretty hard to find it.
Popularity brought its own concerns. IVAs were often used as a sort of default option – the automatic debt management choice, even when they were perhaps not the right debt management choice. Consumer groups pushed for greater regulation and in 2008 it arrived in the form of the IVA Protocol.
The protocol was and remains voluntary but was the first attempt to establish “an agreed standard framework for dealing with straightforward consumer IVAs.”
The protocol ensured that:
- IVAs were not the first option, but one reached only after a payment plan had already been considered
- Consumers’ income and outgoings were checked to ensure an IVA was the right solution; and
- Creditors could not reject an IVA proposal without a specific reason
The protocol has been refined several times since 2008, most recently in 2016, but it has proved successful in giving consumers greater clarity, certainty and protection.
Today, personal insolvencies in England and Wales are running at their highest levels since 2010 and IVAs are at their highest ever levels. Scotland is also seeing increased numbers of personal trust deed applications (the Scottish equivalent of IVAs), with numbers approaching 2013 levels.
So if you are facing debt problems right now, know that there are thousands of people in a similar position to you, and that the level of protection surrounding your debt management solution has never been greater.
For help in finding your way out of debt, talk to us.
More IVA Resources
- Apply For An IVA
- Is An IVA Worth It?
- Are IVAs a Government Scheme?
- What If I Can’t Pay My IVA?
- Can I Get An IVA If I’m Self Employed?
- Rebuilding My Credit Rating After An IVA
- IVAs: What Will I Need To Show My Insolvency Practitioner?
- Who’s Most Likely to Need an IVA?
- How Much Does An IVA Cost?
- Can I Afford An IVA?
- IVAs – Can I Lose My Home?
- IVA And Trust Deeds | Whats The Difference?
- How Will My IVA Affect My Parents?
- An IVA Mythbuster
- Can An IVA Be Rejected?
Trust Deed Example
Example Unsecured Debts
|2||Credit card 1||£6,812|
Your Monthly Repayments Would Be
a Scottish Trust Deed £748
(total contractual repayments)
a Scottish Trust Deed £295
(total contractual repayments)
* Subject to creditor acceptance
* Payment subject to individual circumstances
* Credit rating may be affected
* Fees apply, subject to individual's circumstances. For more information on our fees click here