IVAs jumped 10 percent in the third quarter, reaching their highest levels since 2010. As IVAs continue to rise, experts warn of mounting personal debt.
The number of Britons struggling with personal debts and seeking out individual voluntary arrangements with their creditors has reached its highest level in three years, offering evidence that rising living costs are severely straining the finances of many UK households.
According to insolvency experts, Wales and England are experiencing a “boom” in IVAs, allowing borrowers to restructure their debts to avoid the crippling final option of bankruptcy.
Statistics from the Insolvency Service show that 26,030 English and Welsh residents became insolvent during the third quarter of 2018, rising 1.2 percent over the second quarter.
With 13,394 IVAs being initiated during this time, they accounted for over half of all personal insolvencies, marking a 10 percent increase over the second quarter and reaching the highest quarterly figure since the first quarter of 2010.
An IVA is simply an agreement between a debtor and a creditor that allows the debtor to make regular payments to a third-party insolvency practitioner, who divides the money into payments for each of the individual’s creditors.
According to commentators, the increase in IVAs was an unexpected occurrence.
Phillip Sykes, deputy vice-president of R3, stated, “The continued quarterly increase in individual insolvencies in England and Wales is surprising, and it is even more surprising that this is the second quarterly increase in individual insolvencies in a row.”
Sykes commented that the recent IVA boom can be largely attributed to the fact that people cannot afford to pay £700 in bankruptcy fees. Amidst the growing IVA numbers, the prices of IVAs are surging as companies seek to widen their profit margins.
“Individual voluntary arrangements are possible alternatives to these, but they are only suitable for those with a reasonable level of spare income after meeting expenses, or those with assets such as equity in the family home,” Sykes stated.
Although the number of individuals who are choosing IVAs is on the rise, they are not an accurate reflection of the breadth of the arrangements being made between debtors and their creditors.
PJG Recovery’s Melanie Giles recently cautioned that the official data on IVAs and insolvency does not accurately reflect the rising tide of less formal and unregulated debt management plans existing today. Giles warned, “When interest rates do finally rise, expect to see another surge in people going bankrupt or entering a formal debt repayment plan.”