Don’t think of IVAs as an easy option

As brokers with the best interests of your clients at heart it is essential you understand the options available to them when they have serious problems and make sure they don\'t go for what might seem to be easy options.

According to government figures, almost 30,000 people entered into bankruptcy or individual voluntary arrangements during the last three months of 2006. That was up 60% compared with the same period in 2005, with IVAs growing fast as a proportion. More clients are looking at the IVA option before informal debt management plans or bankruptcy.

The Insolvency Act 1986 introduced IVAs, the idea being that insolvent individuals could put proposals to their creditors for an arrangement. For example, this could be to pay off debts in stages or for creditors to accept a proportion of the debt as a final settlement. This is legally binding on unsecured creditors and provides certainty that that problems will be resolved within a defined time.

IVAs can provide a workable way of dealing with over-indebtedness so that uncertainty is replaced by peace of mind. Compromised debts are written off, dissenting creditors are bound by the decision of the majority and the resulting arrangements are for fixed terms, usually of five years.

All creditors are included in the rescheduling of debts (including Council Tax and utilities), payments can be made in monthly instalments with no further interest accruing and the arrangement is legally binding on all sides.

So what are the disadvantages of IVAs? If clients fall out of IVAs in the early years, most of the money they have been paying will go towards the IVA firm’s costs.

Some IVA firms have come under criticism for misleading clients by exaggerating the amount of debt that can be wiped out. The Advertising Standards Authority is believed to be investigating a number of such claims.

So is this too easy an option? It shouldn’t be. Regardless of their debts, remember that each client is different and must be treated as such. Any option must be tailored to their circumstances.

Which leads me to my next point. It is essential that brokers work with someone who has expertise in debt resolution. Service must be backed up with product solutions, which is where partnerships work in favour of clients whose needs must remain central.