IVAs Protecting the Consumer

Not many moons ago the term Individual Voluntary Arrangement, or IVA would have been like speaking a foreign language to alot of people. Nowadays people are more familiar with the term.



There would also have been a time when there were not many IVA companies around, however now, the number of companies offering Individual Voluntary Arrangements have grown dramatically.



An IVA, originally an alternative to bankruptcy and is a legally binding agreement between you and your creditors which allows you to pay off an agreed percentage of your debt over 5 years. Once the period is over, you are debt free.



There is growing concern that some firms may be suggesting IVA's as a solution when infact, an IVA is not suitable.



Most firms will charge an administration fee when setting out proposals to offer creditors when applying for an IVA.

Perhaps this has encouraged some companies to offer an IVA to people as they will still get paid whether or not the IVA was accepted. The loser of course is the client.



Because of this, consumer groups have called for more protection for people (and themselves) when it comes to an Individual Voluntary Arrangement.



There is now a protocol which is a voluntary code of conduct designed by related consumer groups which hopes to restore people's faith in IVAs:



"The Insolvency Service has facilitated a process which has successfully produced a voluntary code for IVAs to reflect the changing needs of the market," said Pat McFadden, the government minister responsible for the Insolvency Service.



It will provide greater transparency for creditors and debtors alike by using standard clauses and a consistent format."



Transparency is very important when is comes to suggesting an IVA as a solution to a debt problem. People as well as creditors need to know that an IVA is the best solution.



The government said the protocol should ensure that:

• Debtors will be asked to detail their income and outgoings in a standardised financial statement



• Insolvency practitioners will carry out more stringent checks on income and mortgage repayments



• Debtors will be encouraged to try to reach an informal agreement with their creditors before being recommended for an IVA



• There will be an agreement as to when debtors will be deemed to have failed to meet the terms of the IVA, should they get into arrears with monthly repayments.



• A lender who rejects an IVA proposal will need to give a specific explanation for the rejection.

Most people when considering an IVA are not aware of what is deemed to be an acceptable proposal and will go along with what an advisor suggests, trusting that "they know best".



The aim of the protocol is to help the client as well as the creditor to be better aware of the clients financial position before the IVA process begins.



Although this is only a start, it is a step in the right direction, especially for the protection of the consumer.






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