IVA over Bankruptcy

Figures just released by the Insolvency Service show a significant swing away from Bankruptcy and towards IVAs in the fourth quarter of 2009 when compared to the same period a year earlier. Fourth quarter figures for 2009 show that, in England and Wales, IVAs reached a record high of 13,219 an increase of over 26% on the same quarter in 2008 and a historic high for any quarter since the legislation which created the IVA solution was introduced in 1986. Bankruptcies fell by over 5% to a total of 17,007, when the same quarters are compared, the lowest quarterly figure since the second quarter of 2008 and the fourth consecutive quarter in which the Bankruptcy figures decreased.

In Scotland there were similar trends with Sequestrations falling by 16% and Protected Trust Deeds increasing by 27% when the figures for Q4 2009 are compared to those for Q4 2008.

In Northern Ireland the trend was slightly different in that both Bankruptcies and IVAs increased substantially when the same quarters are compared, +30% and +28% respectively. The figures for Debt Relief Orders in England and Wales continue to grow since they were introduced in the second quarter of 2009. However the rate of growth has slowed down markedly. The figures for the three quarters so far are: Q2 2009 - 1,978; Q3 - 2009 4,505; Q4 2009 – 5,348.

Debt Relief Orders are limited to insolvent persons with unsecured debts of less than £15,000, no assets and low disposable incomes (less than £50 per month).

IVAs increased by 22% in England and Wales over 2009 as a whole, when compared to 2008. The annual increase in Bankruptcies was only 11%, thus confirming the trend away from Bankruptcies and towards IVAs.

This trend suggests that debtors are showing a marked preference for the IVA vis-à-vis Bankruptcy as a solution to personal insolvency. However, this is not the only underlying cause of the trend. Creditors also seem to have softened their attitudes towards IVAs and have pulled back somewhat from the hardened approach they adopted in 2007 and 2008. Creditors acknowledge that their returns from IVAs in terms of the amount of debt repaid are substantially better than what they can expect to recover from debtors who are forced into Bankruptcy or voluntarily choose that route. In particular creditors seem to have begun to accept that debtors in IVAs should not be prevented from having a reasonable standard of living over the term of their IVAs and that they should not seek to trim back the debtor’s Income & Expenditure projections to the point where any unexpected increase in expenditure or reduction in income causes the IVA to fail. It appears also that that the expenditure allowances in Bankruptcy have hardened somewhat resulting in higher income payments orders or income payments agreements.

Falling property prices and the loss of equity is probably also a significant factor influencing the trend since in many cases it would not benefit creditors if the debtor were forced into selling his or her home in Bankruptcy. In an IVA on the other hand there is at least some prospect that property prices will begin to increase again over the next five years with the expectation that some equity will be present and realizable to be contributed into the IVA for the benefit of creditors. It also seems that the stigma of Bankruptcy is still a significant factor for many debtors. A further factor, which is not always acknowledged by creditors, is the genuine desire which many debtors have to repay as much of their debts as they can in an honourable way and they see an IVA as the best route to do this while offering them some prospect of retaining their home and their dignity.

About National Debt Relief

National Debt Relief belong to a firm of leading chartered accountants who are one of the largest insolvency practices in the UK. We offer a complete portfolio of personal insolvency services in relation to IVA, Debt Management and Bankruptcy. All our advice is free. If you decide that you wish to pursue the IVA option, we will still provide advice on all of the other options and if we consider an alternative option to be more appropriate to your case and circumstances, we will tell you this. All of our approved IVA’s are administered by Licensed Insolvency Practitioners. We charge no fees and receive no income until your IVA is accepted by your creditors and then our fees come out of your agreed payments to your creditors. If your creditors do not accept your IVA, we receive no fees whatsoever.

Call us on 0800 043 5135 or 028 71 376854 or email enquiries@nationaldebtrelief.co.uk