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. The IVAs 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.
The Insolvency Service’s IVA Outcomes – 2017 has some useful information about how many years IVAs usually last for and what is the success rate for IVAs.
How long do IVAs last?
Look at this graph which has the actual IVA outcomes for the last ten years:
The yellow column shows how many IVAs registered in a year are still in progress.
The 2013 to 2016 columns are almost all yellow, showing that most IVAs started last in the last few years were still going at the end of 2017. That is what you would expect.
But look at the earlier years. Shouldn’t all IVAs that started in 2009 and 2010 have all finished by the end of 2017? Some of them are still dragging on – they haven’t completed successfully, they haven’t failed, they are still open.
Over 10% of IVAs started seven years ago and 5% of IVAs started eight years ago were still ongoing.
A few of these will have had an initial IVA term longer than five years – some creditors such as HMRC and NRAM often refuse to approve a five year IVA. But the main causes will have been a combination of:
- payment holidays taken in the IVA which are then added on to the end of the IVA term;
- extensions to the IVA to allow for extra payments eg if someone received overtime and didn’t pay that to the IVA firm; and
- delays in issuing completion certificates.
Does this matter? Yes it does!
This is what one Debt Camel reader had to say:
These IVA’s were supposed to be a way of getting debt free, not keeping you in insolvency for as long as they can. 3 months just to send out a form to me that they claim they need back is unacceptable. Then it could take up to a year at best to get closed, that’s if they don’t wait for more PPI. I just want it done. 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. These people will still have an IVA marker showing on their credit records, they will find it impossible to get a mortgage or a remortgage and may find it hard to get a tenancy if they need to move. It’s hard to get affordable finance for a new car and after five years in an IVA many people have lists of major things that need replacing.
Until your IVA is completed, many people feel stuck in limbo, with their life on hold.
The problem may also be set to get worse. In 2016, the new standard contract for most IVAs was changed so that people can more easily get a nine month payment break. That may help prevent some IVAs from failing, but the downside is that IVAs overall will tend to be getting longer.
How many IVAs fail?
The next two graphs show the IVA failure rate is changing. The first is from the Insolvency Service data at the end of October 2015 and the second is two years later, using the data at the end of December 2017.
At first sight it may look as though the IVA failure rate has been dropping dramatically. But they haven’t – a lot of the IVAs taken out in the last few years are still continuing and may still fail in the future.
It’s good that the very high failure rates in IVAs that were started in 2007 and 2008 are no longer happening. That is what you would hope, many IVAs started in those years would have been badly affected by redundancies and reduced hours in the 2008/9 crash.
What is a lot less good is that IVA failure rate for IVAs started in the last couple of years – 2015 and 2016 – are now considerably higher than the equivalent years – 2013 and 2014 – were in the 2015 data. These are highlighted by the black circles on the graphs.
A graph showing how quickly IVAs are failing shows this clearly:
The Insolvency Service says:
Current one-year IVA failure rates have risen from recent lows (4.0% in 2013) to 7.7% in 2016 (which is above the long term average).
This increase in early failure rates has coincided with a very large increase in overall IVAs – it is a reasonable conclusion that in the last few years IVAs are being mis-sold to too many people who can’t afford to maintain the payments.
Of course we won’t know for many more years just how many of these 2015 and 2016 IVAs will fail. It’s impossible to say what the final failure rate will be for IVAs being taken out now. When I originally wrote this post in November 2015, I said that it could be 20-25%. I now think that was over-optimistic and we may again be looking at 25-30%.
The failure rates vary between firms
What this data doesn’t help with is choosing an IVA firm. 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?