Consumer Debt, IVAs & Bankruptcy

Insolvency Options for Personal Debt

If you find yourself in debt, your available insolvency options are an Individual Voluntary Arrangement (IVA), Bankruptcy, or a Debt Management Plan.

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Insolvency Advice

The Consumer IVA

Introduced in 1986, the IVA was originally designed to offer an alternative to Bankruptcy for individuals who were proprietors of a sole-trader business. The idea was to give the individual the breathing space to continue trading whereby income payments could be paid from the ongoing trading profits of the business, which would otherwise have folded when said individual was forced into Bankruptcy. The idea was that this be a “win win” for both the debtor (the person in debt), who would avoid losing his business and being forced into bankruptcy and the creditors (those owed money by the debtor), who would get repaid a higher proportion of the debt than would have been the case if the debtor had ended up bankrupt. So much for 1986, the world was a different place back then.

Move onto 2008

Year Total Bankruptcy IVAs
1998 24549 19647 4902
1999 28806 21611 7195
2000 29528 21550 7978
2001 29775 23477 6298
2002 30587 24292 6295
2003 35604 28021 7583
2004 46650 35898 10752
2005 67584 47291 20293
2006 107288 62956 44332
2007 106645 64480 42165

With the massive rise in consumer debt in the last two decades or so, the IVA has evolved to offer over-indebted consumers an alternative to bankruptcy. As a result of the procedure being heavily marketed by large specialist operators such as Debt Free Direct or Debt Matters, the number of IVA’s has grown from a few thousand to a peak of some 44,332. Check out the numbers below, which are the official figures from insolvency.gov.uk.

There has been nearly a tenfold increase in the number of IVA’s in less than ten years. This growth has been primarily in IVA’s by consumers who have over –borrowed, as opposed to people in business getting into trading difficulties.

Over the last few years a significant development in the market has been the rise of TDX Group Ltd (TDX) who have succeeded in signing up most of the major banks and finance companies to act as their agent reviewing IVA proposals on their behalf, thereby consolidating their voting power through the conduit of one agent company, coordinating the voting of about 80% of all creditors voting in IVA’s.

In other words, not to put too fine a point on it, what they say goes. They effectively control the market in that they can reject any IVA proposal they do not like. TDX are acting on behalf of the creditors to maximise returns, thereby justifying their role and fees in the process.

Consequently, if you are an over indebted consumer, and want the opportunity to avoid bankruptcy by way of an IVA, you must now comply with the TDX conditions, otherwise they will reject your proposal and you will not be able to “do an IVA”.

This is actually beneficial in many ways, as it takes all the guesswork out of the equation. If you are in debt, and have a regular income, an IVA is possible, and the following are the TDX conditions that apply:

The Straightforward Consumer IVA

  1. Not all cases can be classified as a straightforward consumer IVA.

    A person suitable for a straightforward consumer IVA is likely to be:

    • In receipt of a regular income either from employment or from a regular pension.
    • Have 3 or more lines of credit from 2 or more creditors.
  2. Age is not a consideration, nor is the debt level, though both factors will impact on the overall viability of the IVA.
  3. A Consumer IVA can apply to both home owners and non home owners. There should be no circumstances where the individual would be forced to sell their property instead of releasing equity. The only exceptions would be where this was proactively proposed by the individual.
  4. For individuals whose circumstances do not meet the above criteria an IVA may still be the most appropriate means of dealing with their financial problems but their case is unlikely to be suitable for a straightforward consumer IVA with the conditions described here.
  5. The following are indicators that a person’s circumstances are unsuitable for a consumer IVA. If any of these factors are present in a consumer IVA proposal they should be specifically highlighted in the proposal and the accompanying summary sheet:
    • Uneven/unpredictable income -- people with more than 20% of their income coming from bonuses or commission or who are unemployed.
    • Benefit income- a debtor with more than 20-25% of their income coming from benefits. For the avoidance of doubt, tax credit is not a benefit.
    • Disputed debts -- there should be no known material disputes in relation to the debt.
    • Investment properties -- those with investment properties would not be suitable for a straightforward consumer IVA.
    • Possibility of full and final settlement -- where a full and final settlement is possible in year 0 (of over 65% of the total debt).
    • Low surplus income -- if the consumer has a very small surplus income (i.e. 5 years of dividend payments amount to less than 20% of the outstanding debt) and there is significant equity in their home.
  6. There is nothing to prevent individuals who are self-employed applying for a consumer IVA, when that self-employment produces regular income. This should be highlighted in the proposal and the accompanying summary sheet.
  7. A debtor does not have to follow a consumer IVA framework, even though his or her situation may fit within the definition of a straightforward consumer IVA. Where this occurs, but elements of the protocol are still used, this should be highlighted in the proposal and the accompanying summary sheet.


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