I am deeply concerned about the findings of Channel 4 and the Bureau of Investigative Journalism, which found that more vulnerable people were being mis-sold Individual Voluntary Agreements (IVAs) causing them to end up in more debt.
An IVA is an alternative to bankruptcy, and is a formal and legally binding agreement between a debtor and their creditors to pay back their debt over a period of time in monthly instalments, usually five or six years. It is very expensive to enter an IVA and if a debtor owes less than £10,000 it may not be the best option for them to take.
Individuals in one of these agreements have to follow a very strict budget and will have to pay a significant proportion of their income towards clearing the IVA, with a proportion of the fee going to an Insolvency Practitioner (IP), who organises the IVA, and the rest of the fee going to creditors.
And this will leave very little money to live on, with the average debtor in the IVA having £50 a month in disposable income for the term of the arrangement. Furthermore, if the debtor receives a windfall, this will usually be taken and paid to creditors directly, even after the IVA has finished.
Having worked as an administrator for a debt collection agency, I've seen first hand the very destructive impact an IVA can have on someone. Therefore, I find it completely despicable that debt management companies are preying on vulnerable debt-ridden people and advising them to enter IVAs without explaining the full implications which won't be known by the debtor until it's too late.
If you find yourself in debt, an IVA may not be the best solution unless you have a house or a car that's worth protecting. And you can afford the repayments each month. The best thing you can do is reach out to each of your creditors individually to let them know about your situation and if that doesn't work, contact a free debt advice company such as National Debtline or StepChange. Many more are available.
I am very keen to see the Financial Conduct Authority (FCA) take more action to ensure that providers of IVAs are compelled to give debtors the full picture before they make a decision they may regret. Furthermore I would welcome the government taking much stronger action to ensure the FCA protects vulnerable people at this time.
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