IVA's: a cautionary tale

The point is often made, especially by Licensed Insolvency Practitioners (IPs) who operate IVAs, that a Debt Management Plan (DMP) is an inferior model to an Individual Voluntary Arrangement (IVA). This is probably because IPs have been around for many moons and do not always appreciate having to share their world nowadays with the new kids on the block, namely the Licensed Debt Managers with their DMPs.

We would like to think that it is more a question of "horses for courses" and that each, the IVA and the DMP, has their own merits when used in the right context and for the right individual. Best debt advice should be given at all times! So, in an attempt to bring balance to this debate let us tell you of a true and cautionary tale that demonstrate some of the pitfalls of entering an IVA.

Whilst this story is true, as you might expect, some detail has been changed to hide the identity of individuals. For example, let us pretend that the couple involved are called Mr & Mrs Smith!

Mr & Mrs Smith had about £20,000 of unsecured debt and they sought protection from their creditors through an IVA. The IVA was duly agreed and set up costing them around £400 each month. But despite this, Mr & Mrs Smith remained under pressure financially largely because the high level of IVA payment meant that they now struggled to pay their mortgage. 

Things went from bad to worse; their relationship suffered under the strain and eventually they decided to separate just as the bailiffs moved in to repossess their home. And with the collateral fallout of the whole affair, the IVA not only appeared to be irrelevant but also unaffordable.

So, Mr Smith attempted to reverse his way out of the IVA. He had already paid around £4,500 but was horrified when he received his final account from the IVA Supervisor which showed that they, whilst acting as Nominee, had claimed £3,000, and a further £300 as Supervisor. Additionally, they had charged £600 for disbursements and a further £600 for irrecoverable VAT, leaving not a single penny for to his creditors.

Thus Mr & Mrs Smith had entered an IVA owing £20,000 towards which they paid £4,500. They came out of the same IVA still owing £20,000, plus a further £30,000 for the shortfall on the repossession of their home.

The moral of the story; be careful before committing yourself to an IVA as they can be expensive, last up to 5 years and they do not cover debts for which security is held by the creditor. A well run Debt Management Plan may have been a better solution for Mr & Mrs Smith.