Why Has It Taken The Individual Voluntary Arrangement (IVA) So Long To Take Off? (Part 1)

Until the last fews years the most preferred debt help strategy was, for many people, the debt management plan.

Debt management plans (DMP's) are essentially an informal arrangement between an individual and their creditors to repay what is owed in full over a longer period of time than the original contractual agreement.

For many individuals that found themselves unable to service their unsecured debts contractually, the ability of being able to pay a reduced monthly payment in a DMP based on realistic affordability was often appealing. To this end many thousands of people signed up for debt management arrangements offered by third party debt management companies (DMC's)

Indeed throught the lates 1990's and into 2000+ debt management companies mushroomed in number. Commercial organisations such as Baines and Ernst, Payplan and Gregory Pennington saw an opportunity to capitalise on britain's growing consumer debt problem by offering debt management plans to over indebted consumers accordingly.

Also, business minded charities such as the Consumer Credit Counselling Service (CCCS) that had essentially copied the American model of consumer credit counseling also saw the need to expand their operations to offer debt management plans to the UK's ever swelling population of debtors.

Surprisingly however, a little known formal insolvency procedures called the individual Voluntary Arrangement or IVA never really gathered much momentum despite the growing numbers of individuals suffering from problem debt.

The IVA strategy offered debtors a fixed repayment term (typically 5 years) unlike debt management plans that could often go on for 15 to 20 years and was also a binding agreement on a persons creditors unlike the DMP.

Additionally, the IVA was administered by a highly regulated Insolvency Practitioner unlike debt management plans that are administered by a largely unregulated third party industry.

Other benefits offered via an IVA was the fact that all interest and other charges would be completely frozen as the Individual Voluntary Arrangement was a legally binding strategy stamped by a County Court. This is in stark contrast to the informal debt management plan as creditors were not obliged to accept the terms proposed in a DMP and often did not agree to reduce or freeze interest costs and other charges as part of the DMP proposal. Hence many individuals that entered into a debt management plan often found themselves in a worse financial situation than before as their debt had increased due to creditors refusing to accept the repayment terms proposed in a DMP.

So why did it take so long for the IVA strategy to be viewed as a better alternative to the the DMP for many people with large unmanagable debts?

Well one reason is certainly the fact that the IVA is a more complicated procedure than the DMP. Hence larger commercial debt management organisation's operating within a relatively unskilled call centre environment did not really gets to grips with identifying the suitability of the IVA and hence the awareness of the versatility of the product remained low in many organisations.

AS IVA's can only be proposed and supervised by a licensed insolvency practitioner another reason for the general lack of consumer awareness about the voluntary arrangement option can be attributed to the lethargy of traditional firms of chartered accountants offering IVA's to grasp the opportunity of promoting the benefits of the IVA over the DMP with more vigour.

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