Debt Solutions Are Dwindling

We currently have four solutions for dealing with debt, but one of them, the IVA, may be on the way out.

Banks are cracking down on the number of IVAs that they agree to. In fact, IVAs are becoming so difficult to arrange that they are becoming unprofitable to debt-solution companies, as Debtmatters Group reported this morning. No doubt other insolvency companies are struggling too.

Let's look at the positive side first. Today's news means that fewer borrowers will be wrongly pushed into taking IVAs. IVAs are a good solution for some debtors, but thousands more people take this route than they should. 

It is not a cheap or easy option. Many would be better off, emotionally as well as financially, doing something else, i.e. managing their finances better, putting in place an informal debt-management plan, or declaring themselves bankrupt.

The negative side is that one of our four debt solutions is gradually becoming harder to do. This is not good news for the people whose best solution is an IVA. I don't think that IVAs are becoming extinct just yet, but more of us are being forced or steered to use one of the other options instead.

Who should get accepted for an IVA?

IVAs, in full, are individual voluntary arrangements. And they really are individual. They are arranged based on whether your lenders agree to whatever IVA plan your insolvency practitioner comes up with.

Generally, your plan will be accepted if your lenders are likely to get a large proportion of your debt back by the end of the IVA. On the other hand, if you could pay off your debt by re-mortgaging, the lenders are more likely to expect you to do this.

For whom are IVAs suitable?

Just because you can get an IVA, it doesn't necessarily mean you should. To consider an IVA, you should have at least £15,000 of debt spread between at least three organisations. Also, some people couldn't continue in their profession if they went bankrupt, so an IVA is much more preferable.

Conversely, IVA's are not usually suitable for those with grossly unmanageable debt and no assets.

But whether you should have an IVA comes back to the word individual again: each person must receive individual guidance based on their own finances.

Where to start

The best place to start to deal with debt is to summarise your financial position by drawing up a Statement of Affairs. Next, post it on the Dealing with Debt board (which you can do anonymously). Then lots of knowledgeable and helpful Fools will consider it and get back to you with your options.

If our board users suggest that an IVA is best for you, and you agree with them, you'll need to find an organisation that'll advise you further and, if appropriate, draw up an IVA for you. The two organisations that get the most positive feedback on our discussion boards (usually, although I believe that no provider has been totally free from criticism) are Payplan and the Consumer Credit Counselling Service.

To ensure you receive the best advice from them, you could ask for time to think about it and run it by our board users again, and by Citizens' Advice.

> Read about your debt solutions in Five Top Ways To Clear Your Debt.