The latest insolvency statistics, compiled by the Insolvency Service, showed the highest levels of insolvency on record. There were 35,574 individual insolvencies in England and Wales in the final quarter of 2009, as borrowers continued to struggle with high levels of debt in the difficult economic climate.
This was an increase of 24.9% over the total number of insolvencies seen in the fourth quarter of 2009. A large part of this increase was made up of IVAs (Individual Voluntary Arrangements), which increased by 26.3% over the year.
An IVA is a formal agreement in which a borrower will agree to repay as much of their unsecured debt as possible within an agreed period of time. It`s designed to help people who can`t afford to repay their debts in full, and it gives lenders a chance to regain a reasonable amount of the money they are owed.
In most cases, the borrower will make monthly payments towards the IVA for five years. They`ll be expected to pay as much as they can towards the IVA for the duration, and this means they`ll probably be expected to put a portion of any increase in income (such as a bonus or pay rise) towards their debts.
On successful completion of the IVA, the borrower will be legally debt-free (of their unsecured debts). The IVA will, however, remain on their credit record (in most cases, for a year after the IVA finishes), making it harder and/or more expensive for them to access further credit while it`s there.
There`s no easy way to tell why IVAs have been increasing at the rate they have. Clearly, increasing debt problems in a difficult economic climate have caused the overall rise in insolvencies, but at the same time, the number of new bankruptcies actually fell by 5.5%.
It`s possible that this is largely due to borrowers becoming more aware of the various options available to them. As well as IVAs, the introduction of Debt Relief Orders (DROs) has given more people access to a form of insolvency that`s appropriate for them.
IVAs are often considered a preferable alternative to bankruptcy, as they avoid some of bankruptcy`s potential downsides (such as repossession). But bankruptcy can still be the best option for some people - for example, it`s usually over much more quickly than an IVA, and the borrower won`t necessarily have to make regular payments.
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Tags: debt, debts, iva, insolvency, bankruptcy
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