IVAs – A Brief History
Insolvency is not a modern phenomenon. The first official Bankruptcy Act was passed in 1542, although back in those days not being able to pay back your debts could see you put into a debtors jail (gaol) until your family could find the money to pay your debt. There were no debt management solutions like IVAs. Charles Dickens’ father ended up serving time for unpaid debts, the experience of which prompted him to speak out against them in some of his best novels.
Debtors prisons were abolished in the late 1860s, but modern day laws about Insolvency and Individual Voluntary Arrangements were not brought in until 1986 with the Insolvency Act.
Back in the 1980s credit wasn’t widely available. The closest most individuals came was owning a mortgage and even companies found it hard to get loans when they needed them. Consequently when something financially challenging happened, such as a recession, with little access to credit the company would usually file for bankruptcy as there was no other alternative. Even those who had a good business model but little free cash when it was needed were going to the wall, even though with a little time they could be made profitable again. The result was a loss of employee jobs, the product or service the company provided, and of course income for the business owner and creditors as the returns on what they were owed once the company had been dissolved was usually very poor. It was a lose-lose situation for all.
The Insolvency Act 1986 made it possible for businesses with cash flow problems to buy some time and pay back their creditors over a longer period while still trading and generating profits without their debt burden hampering them. This is turn had a number of positive knock-on effects, such as:
- No need for the company to cease trading
- No need for employees to be made redundant and therefore claim state benefits while job hunting
- The creditors get most, if not all, of their money back rather than very little if the company went bankrupt
- Creditors could continue to do good business with their debtor if they wished
- Any assets that the business decided to sell could be done as part of a restructuring business plan rather than in haste and at a lower price to generate cash
Somewhere along the line, someone realised that an IVA didn’t have to be restricted to someone who was in business, that it could work for an individual in debt too. In fact, IVAs for individuals are much more simple and quicker to set up than for a business.
As the years have passed, personal IVAs have grown in popularity and have now massively exceeded corporate IVAs in number from just 404 IVAs in the year of their introduction to over 48,000 today.
Along the way there have been adjustments made to the processes that IVAs operate under, notably in 2008 when a new IVA Protocol was introduced. The previous few years had seen Banks and Building Societies refusing to allow their customers to be awarded IVAs. Chief among the complaints was the lack of guidelines for IVA providers to abide by when considering the suitability of IVAs for their clients. The IVA regulatory bodies stepped in to mediate, and the result was a code of conduct know as the IVA Protocol. Work on refining the guidelines continues today with proposals in the pipeline to introduce fixed fee IVAs.
IVAs will remain a popular and enduring method of tackling unsecured debt, and will continue to adapt to market changes, and consumer and business needs as time go on.
To find out more about IVAs and whether they are right for you, call now and speak to one of our experienced IVA advisers now on 0800 987 5337
Example Unsecured Debts
|2||Credit card 1||£6,812|
|3||Credit card 2||£4,092|
|4||Credit card 3||£5,399|
|4||Credit card 4||£5,200|
Your Monthly Repayments Would Be
an IVA £748
(total contractual repayments)
an IVA £295
(total contractual repayments)
* Subject to creditor acceptance
* Payment subject to individual circumstances
* Credit rating may be affected
* Fees apply, subject to individual's circumstances. For more information on our fees click here