Changes to the Individual Voluntary Arrangement (IVA) framework for those in debt are a reminder of the range of options available in the insolvency toolkit.
The Insolvency Service has published a revised IVA protocol to improve the service currently offered to people in debt and safeguard them from bad advice. It’s the result of collaborating with regulators, trade association R3, creditors, providers and debt charities following research from October 2024 which found poor practice among some IVA providers.
An IVA is a legally binding agreement between a person who is insolvent and their creditors. It can give a debtor more control of their assets than bankruptcy, a creditor-led court process which takes into account the entirety of a debtor’s assets. The IVA route may, for example, be a way of protecting a family home from being forcibly sold, or of allowing members of certain trades or professions to continue working, from which bankruptcy might exclude them.
Monthly payments are paid to creditors, at an agreed rate that considers available income after reasonable living expenses. The IVA process, managed by an Insolvency Practitioner (IP), usually lasts five to six years.
The new protocol is said to bring greater clarity and certainty to both creditors and personal debtors as well as better guidance to IPs about their responsibilities when giving advice. A new ‘key facts’ document will be given to consumers before they agree an IVA proposal and provides a higher level of detail on what to expect. It covers key areas, including implications for homeowners, fees charged by IVA providers, how monthly repayments are calculated and individual credit scores.
Some of the main changes, for which the Insolvency Practitioners Association, as the largest regulator for the sector across the UK, has long been advocating, include:
- Clearer guidance for when an IVA is not suitable, for example, if a consumer qualifies for a Debt Relief Order.
- The consumer’s family home will no longer form part of their IVA if the providers and creditors follow the protocol.
- Where an IVA is terminated, a requirement that the supervisor should signpost the consumer to free, regulated debt advice.
In 2024, Insolvency Service research examined 310 IVAs which had been both registered and terminated between 2021 and 2023, finding that 60 per cent showed evidence of poor practice in the early stages. Last year in England and Wales a total of 64,050 IVAs were registered.
Details of the IVA protocol revisions may be found here.
Those facing personal insolvency are welcome to contact Buchler Phillips for an initial exploratory discussion, including considering the ‘breathing space’ option, to review possible solutions to suit their circumstances.
Written by Guy Poulter, analyst at Buchler Phillips, a UK based independent boutique firm with an impeccable Mayfair heritage, specialising in corporate recovery, turnaround, restructuring and insolvency.