Why Creditors Don't Like IVA's
Why Creditors Don't Like IVA's
Why Creditors Don't Like IVA's
Failure on the part of lenders to agree to the "lighter" form of bankruptcy, an Individual Voluntary Agreement (IVA) has forced many into financial breakdown.
The banks claim that the insolvency practitioners (IP's), who administer IVA's, are charging exorbitant fees and so refuse to agree to an IVA. The Insolvency Service, who regulate the IVA's and bankruptcy in England and Wales, have voiced concerns about the banks behaviour.
The IP's defending their corner, state that they are charging the market rate for a professional service. This has led the Debt Resolution Forum, which represents 28 IVA providers, into considering a legal challenge if the banks continue their policy of refusing IVA's.
So why are creditors refusing so many IVA's? Fees have not suddenly increased over-night. The real reason is that banks want as much of their money back as possible and the only way this can happen is through debt management. One of the drivers in this is that in past year the economy has been stumbling and the pessimistic bankers are bracing themselves for trouble. Another driver is that the banks have not really been carrying out the right credit and affordability checks before issuing credit cards and have allowed their customers to run up large debts which they cannot afford.
An IVA should get a favourable return to the creditor, definitely much better than bankruptcy so why are the banks so against them? In the past five or so years, financial institutions have been putting more money into free debt management companies and charities like CCCS and Payplan, which on the face of it seems the responsible thing to do. However, in light of recent events there appears to be a more sinister side to this altruism.
An IVA is voluntary in that a debtor, who meets certain conditions, can say, "I can't cope with this debt mountain and this is what I can afford to pay back." An IP will take control of the debtor's finances and ensures that all creditors receive a fair slice of the cake. Very importantly, while an IP is in charge, a debtor is unable to accrue any further debts.
Bankruptcy has a lot of stigma surrounding it, some of it perpetuated by the banks, and is invoked by creditors through the courts so your average Joe will do just about anything to avoid going bankrupt, which is just what the banks want. Therefore, if an IVA has been refused and you want to avoid bankruptcy then debt management is the only way out. The banks support these free debt management agencies so that they are the winners, getting virtually all of their money back, including interest and without having to write off any debt.
Banks are keeping debtors trapped in a debt-ridden state for significantly long periods of time, allowing no relief from the stress and anxieties associated with that. Tragically, debtors often end up amassing more debts during the debt management period, thereby becoming caught in a never-ending vicious circle of debt, enforcement and repayment. Without the debt-free state imposed by an IVA and the related financial lessons learned by being forced to live within your means, some debtors never break that circle.
In the public eye, the banks are providing a valuable service of support and help to those with debt problems, by funding free debt management companies. Privately, they are thankful that they are not writing off as much debt as they would be throughIVA's. So their reckless business plan of lending to any Tom, Dick or Harriet has paid off and they will be laughing all the way ..... into their own coffers.
For more information about debt andIVA's visithttp://www.debtwatchdog.com
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