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A “concerning” level of poor practice has been found in the market for individual voluntary arrangements (IVAs), according to the Insolvency Service.
IVAs are a legally binding agreement between a person who is financially insolvent and their creditors, and 64,050 were registered across England and Wales in 2023.
They freeze a person’s debts, stop recovery action and provide debt relief, allowing people to become debt-free over a set period.
They often provide a better outcome for consumers and creditors than alternative debt solutions such as bankruptcy, the Insolvency Service said.
But after concerns were raised about the way IVAs were being offered, the agency commissioned research to look into the market.
We are working with the industry’s regulators on ways to improve this important area of support for people with debt, to make sure they are always given the best advice
Researchers looked at 310 randomly selected IVAs which had been registered and terminated between 2021 and 2023, and found that 60% showed evidence of poor practice in the early stages.
Examples of poor practice included people’s income and spending not being recorded accurately by providers, other debt solutions being incorrectly dismissed and providers failing to make sure people understood what they were signing up to.
Claire Hardgrave, the head of insolvency practitioner regulation for the Insolvency Service, said: “Poor practice in the IVA market isn’t in anyone’s interest. It is bad for the economy, for creditors and providers, and it has negative consequences for people dealing with problem debt, including those who are vulnerable.
“While IVAs can work well for many, if an IVA is unsuitable it can leave people struggling with their household budget, being in debt for longer, or even taking on more debt to make their IVA payments.
“We are working with the industry’s regulators on ways to improve this important area of support for people with debt, to make sure they are always given the best advice.”
Despite steps to improve practices over the past few years, the Insolvency Service said it has still received reports of poor behaviour, including aggressive marketing towards people in financial distress which fails to mention fees charged by organisations or cheaper alternatives.
The service said measures being investigated include creating new advertising protocols, simplifying the process for people entering IVAs, making sure people are presented with more information before they sign up to an IVA and better staff training.
Anna Hall, corporate director for debt at the Money and Pensions Service, said: “This research shows how incredibly important it is that those who are struggling with debt have access to free and impartial advice, helping them to understand the best way to manage their financial situation.
“For free and impartial guidance, visit MoneyHelper.org.uk to access our debt advice locator tool which provides information about free and confidential debt advice online, over the phone or near to where you live.
“A debt adviser will treat everything you say in confidence, never judge you, and will suggest ways of dealing with debts that you might not know about.”
