In the past many consumers had no idea what an IVA was, but awareness has been raised over the past couple of years following a series of glossy advertisements run by a number of debt management agencies. An IVA, or Individual Voluntary Arrangement, is a legally binding agreement between a borrower and his or her creditors with regards to the repayment of debts. The aim of an IVA is to get the borrower out of debt more quickly, increase short term affordability for the borrower, and enable creditors to recoup some of what is owed to them.

An IVA is known as a softer alternative to bankruptcy, and enables borrowers to repay a set amount each month, which is then distributed between the creditors. This is paid for a fixed period, which is usually five years, and after this period any remaining balance on the debt is written off. In order to be eligible for an IVA you or your partner must be employed full time, and you must have at least £15,000 of unsecured debt. The majority of your creditors must also agree to the IVA before it can go through.

Over recent years there have been concerns that whilst many debt agencies have been pushing IVAs with their advertisements and marketing materials, consumers were not being told enough about the risks of this process. In addition, many creditors were clamping down on IVAs, rejecting many applications and forcing borrowers who were unable to repay their debts to take other courses of action. With more and more people trying to go down the IVA route after the mass influx of advertisements – which many said made the process sound like an easy way out of debt – creditors became even stricter about accepting IVAs.

However, a new IVA protocol has recently been developed, where debt agencies, creditors, and campaigner have all worked together in order to put together a protocol that could make this process more transparent, and could see a drop in rejections from creditors.

The Insolvency Service has been involved in drawing up the protocol, and one official from the service said: “The Insolvency Service has facilitated a process which has successfully produced a voluntary code for IVAs to reflect the changing needs of the market. It will provide greater transparency for creditors and debtors alike by using standard clauses and a consistent format. Today’s protocol is a significant achievement for everyone involved.”

The move has also been welcomed by the banking industry, and a spokesperson from the British Bankers’ Association said: “The BBA, the Insolvency Service and the participating IVA providers are united in support for this agreement, which should provide customers with the reassurances they need in order to make the right choice for their financial futures.”

An industry professional added: ‘All this does is tighten up and simplify what’s already in place. I’m not sure we will be forwarding more people for an IVA, but this means that more people should be accepted and less will have to resort to bankruptcy.

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