The Insolvency Service released earlier this week statistics on Individual Voluntary Arrangements which provide over-indebted individuals the opportunity to repay over time a portion of their debts. Originally designed for individual business debtors, enterprising accountants transformed IVAs into a mass-produced consumer remedy in the early 2000s. In a recent submission to the Insolvency Service, Joseph Spooner and I raised questions about the extent to which IVAs serve the public interest. The recent IVA statistics underline these questions. The statistics indicate increasingly long IVAs of at least 5 years (the original model envisaged a three-year repayment plan). Only 33 percent of IVAs registered in 2008 had completed by October 2014. Over 35 percent of plans begun that year were terminated with the possible consequence of a subsequent bankruptcy for the debtor. These statistics are on their face troubling and demand further investigation. Perhaps the longer plans reflect the fact that individuals miss some payments because of a change of circumstance such as a period of unemployment or plans are modified. But these individuals might have been better to declare bankruptcy initially and make a swift fresh start, benefiting the economy from greater productivity and increased consumption.
Unfortunately no systematic empirical studies exist in England and Wales of the economic and social costs and benefits of IVAs. No studies have attempted to assess debtors’ experiences of IVAs and whether they have a genuine fresh start at the end of five years. Policy making on IVAs has been effectively privatised. The terms of IVAs are determined through private bargaining between creditor and debtor, against the background of a ‘protocol’ developed by bankers and insolvency professionals with modest input from public interest groups.