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IVAs being rejected by many UK banks

A leading debt management company in the UK has admitted that many UK banks are now rejecting IVAs at an early stage, which has resulted in a slow down in the area of IVAs. An IVA is an individual voluntary arrangement, and is where a borrower in high levels of debt comes to an arrangement to pay a certain amount per month on each debt for a specified period, usually five years, after which time the remaining balances on the debts are written off.

With an increasing number of people filing for bankruptcy or going through IVA procedures banks and lending institutions have suffered considerably in terms of financial losses. And this is why so many lenders have now started to reject IVA applications – in order for an IVA to go ahead there has to be a majority vote from lenders on accepting the IVA otherwise it is rejected.

A number of banks have criticized IVAs, blaming them – and debt management agencies – for the high levels of bad debt that have accrued over recent years. With so many debt management agencies now putting out glossy ads in the UK to encourage people in debt to consider this type of action, more and more people have filed for an IVA. But at the same time more and more lenders have started rejecting these IVAs in order to get a tighter reign over the levels of bad debt.

The Chief Executive of Debt Free Direct stated: 'It is apparent that changing creditor criteria for acceptance of an IVA, whether justifiable or not, is having an impact on case conversion. They are now failed early in the DFD process, rather than letting them fail at Meeting of Creditors, because of particular creditor preferences. An increased incidence of case failure and, more particularly, case adjournments, have led to a slow down in the growth in run-rate of new IVAs.'

Richard Smith
10th February 2007




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