More reasons to avoid IVA and sign up to a debt management plan instead?

Published: 22nd November 2011
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If you believe the adverts, IVA providers would like you to think that they’re ‘government backed’, that you’ll have ‘75% of your debts written off’ and that IVAs are ‘new legislation’. Debt Management companies offering IVA’s have prospered year on year since their introduction in 1986. The OFT have insisted that all companies that offer their clients debt solutions such as a debt management plan, should also offer IVA, Bankruptcy, and all the other solutions available. Known as ‘best advice’, any debt help provider who doesn’t offer IVA’s will lose their license.

According to statistics on the debt wizard site (click there were 404 IVA’s administered in the first year after inception (1987) compared to nearly 7,000 personal bankruptcies. By 2000, the numbers signing up to IVA had risen to nearly 8,000 compared to 22,000 personal Bankruptcies. Last year, they almost caught up with Bankruptcy in popularity- 51,000 IVA’s were approved against 60,000 Bankrupts.

The bad news for all those thousands of people signed up on IVA’s is that they will be missing out on one of the biggest cash giveaways of recent times – the refunding of Payment Protection Insurance by the Banks to their customers.

British courts recently ruled that Banks had been ripping off their clients for years by adding Payment Protection Insurance policies to loans, credit cards and mortgages that were not needed, not wanted and not worth the paper they were written on. The court ordered that the Banks must repay PPI to all customers they had mis-sold to. Estimates suggest that victims will share a cash windfall of £10 Billion in refunds from the Banks - fantastic news for debtors!

Not so for those on IVA’s…

According to this report by Which? those taken in by the flashy adverts promising “75% written off” etc are to be told that their cash windfalls will be swallowed up by their IVA, being used to clear debts that were supposedly going to be ‘written off’. Even if an IVA client receives a cash refund directly from the lender, they must declare it as a “windfall” to the Insolvency Practitioner who will promptly swipe it to put in the IVA pot.

This would not have happened if the client had chosen a debt management plan instead of an IVA. The creditor would have been entitled to reduce the clients debts proportionally to the amount of the refund – but any excess would be the clients and would not have to have been distributed to other creditors – unless the client chose to.

It’s hard to know if people with IVA’s who could have been due massive refunds from their Banks for mis-sold PPI would have preferred to go on a debt management plan instead. However, with more and more sites such as Martin Lewis’s appearing on the internet, at least people will be able to make more informed choices in future about whether to sign an IVA ( or choose the less formal and more flexible debt management route instead. After all, who knows what the next big Bank rip-off scandal will be – would you want to exclude yourself from future giveaways?

If debt management is something you would like more information on then contact UK Money Solutions who are happy to point you in the right direction whether you want to go it alone, use a charity or use their experienced services to administer a debt management plan on your behalf.

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