If you are thinking of starting an IVA, you will hear that IVAs last for five years, sometimes six.
But find out the facts – as that is misleading.
An IVA may have been expected to last for five or six years at the beginning, but payment breaks and extensions mean that many last for much longer.
And government statistics show that increasing numbers of IVAs aren’t getting to the end at all – they fail.
How long do IVAs last?
The Insolvency Service’s IVA Outcomes – 2020 has data about how many years IVAs usually last for and what is the success rate for IVAs.
Because IVAs go on for such a long time, it won’t be known for many years how long most IVAs taken out in the last few yearswill last for.
But you would expect that all IVAs started in 2012 would have finished by the end of 2019, wouldn’t you… but 8% were still going. And 2.5% of IVAs started in 2011 were.
This is what one Debt Camel reader said:
IVA’s were supposed to be a way of getting debt free, not keeping you in insolvency for as long as they can. After 75 months of paying for this and a further 3 already waiting for news of closure I am sick of the stress of it all.
That is a pretty common reaction. Many people feel their life is just on hold in an IVA, for year after year.
Until their IVA completes, the IVA marker stays on their credit record:
- they will find it impossible to get a mortgage or a remortgage;
- it may be very difficult to get a tenancy if they need to move unless they have a guarantor;
- the longer their IVA goes on, the older their car, white goods and furniture gets.
How many IVAs fail?
The IVA Outcome Statistics also has details about how many IVAs succeed – get to the end and complete properly, with any remaining debt being written off.
It is inevitable that a few IVAs will fail. In a five or six year contract, unexpected things can happen. That isn’t the fault of the IVA firm is at the start of the IVA it look likely to go well – it’s just life.
But the recent trend is that a lot more IVAs are failing in the first few years, and that isn’t good. It should be very unusual for an IVA to fail in the first couple of years.
For IVAs that started in 2013, only 4% failed in their first year. But for IVAs that began in 2018, that rate had more than doubled to over 8%.
The number of IVAs failing before they get to the end of their second year has also shot up – it was nearly 20% for IVAs that started in 2017,
We won’t know for several more years what the final failure rate will be for these recent IVAs – but by their thrid year more than 25% have failed so it looks likely that the final failure rate will be more than 30%.
I think the reason for the high early failure rates is not the overall economic environment, it is more likely to be that too many people are being sold an IVA that is not the best debt solution for them.
In particular there have been a lot more IVAs set up with low monthly payments. These IVAs are very vulnerable to someone having either lower income or higher expenses. If you are paying £350 a month and your hours are cut, then there is room for your monthly payments to drop and your creditors will probably agree to this. But if your payment was only £120 at the beginning, there is little room to reduce it if there are problems, so difficulties are more likely to mean the IVA fails.
The failure rates vary between firms
A firm’s IVA failure rate isn’t published – I think it should be as some firms have a lot better record than others.
Why shouldn’t a customer have this useful piece of information when selecting a firm?
StepChange has taken the unusual step of publishing its early IVA failure rates. They are a lot lower than the average failure rates the insolvency Service has given for the whole market.
What about 2020 data?
Normally I update this article every year with the new annual data from the insolvency Service.
But the Pandemic affected a lot of IVAs in 2020 and so the data for that year isn’t going to be very helpful in seeing whether the trends towards longer IVAs and higher failure rates have continued.
New emergency IVA rules brought in because of Covid-19 meant that a lot of IVAs were just given long payment breaks. So not as many completed and not as many failed either.
We won’t know for several years how many IVAs were rescued by these Covid-19 breaks and went on to complete successfully, or how many will have failed in the end.