The Insolvency Service’s IVA Outcomes – 2015 make interesting reading for the industry, for debt advisors and for anyone thinking of entering an IVA. I’m going to focus on two main areas: how many years IVAs usually last for and what is the success rate for IVAs.
How long do IVAs last?
IVAs last five years, or sometimes six if you have a house with equity and can’t remortgage – right? That is what is supposed to happen, but look at this graph:
The yellow shows how many IVAs registered in a year are still going. So, as you would expect, the 2014 column is almost all yellow, showing that most IVAs started last year were still going in 2015.
Look at the 2006-8 columns – you would expect these IVAs to have been completed by now, but there are still significant numbers of IVAs started in those years which are still ongoing – they haven’t completed successfully, they haven’t failed, they are still open. In October 2015:
- 5% of IVAs started in 2006 were still ongoing, having started nine years earlier; and
- over 12% of IVAs from 2008 were still ongoing, having started seven years
A small number of these will have had an initial IVA term longer than five years. The main causes will have been a combination of “payment holidays” taken in the IVA which are then added on to the end and delays in issuing completion certificates.
Does this matter? Yes it does if people are trying to decide between an IVA and a DMP, or an IVA and bankruptcy and are assuming that an IVA will be over in five years – often it won’t! When you take into account that nearly 40% of the 2008 IVAs have failed, that means that about 1 in 5 of IVAs that haven’t failed are still open after 7 years…
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. Until an IVA is closed, it remains on your credit file. It’s hard to get finance for a new car or boiler or roof, and after 5 years in an IVA many people have lists of major things that need replacing. Selling your house is complicated and it’s impossible to remortgage at a good rate. Until your IVA is completed, many people feel stuck in limbo with their life on hold.
How many IVAs fail?
The next two graphs show the percentage of IVAs taken out in a year that have failed (“terminated”):
These can be confusing to read – at first sight it may look as though the IVA failure rate has been dropping dramatically. That is because a lot of the IVAs taken out last year haven’t yet failed but will do so in future.
Take 2012 as an example. If you look at the 2012 column on the 2013 data chart on the left, it shows that 6.4% of these failed in their first year. Two years later, on the 2015 data chart, the failure rate for 2012 has gone up to 16.7%. And more of these 2012 IVAs will continue to fail for a while, so we won’t know what the overall failure rate is going to be for 2012 IVAs for several more years..
Looking at how the data has changed over the years though, it’s fair to make a couple of points:
- the current failure rates are well down on the very high failure rates of 2003-2007. If I had to guess, I would say that 2011-2013 final failure rates will be in the 22-26% region; and
- the improvement in failure rates now seems to have levelled off, with the failure rates in the most recent three years of the 2013 chart being almost the same as the failure rates of the most recent three years in the 2015 chart.
The Insolvency Service report speculates that part of the reason for the reduction in the failure rate may have been the introduction of the IVA Protocol in 2008. Perhaps … but some more obvious reasons are:
- a large number of IVAs that were open in 2008 and 2009 will have failed because of the credit crunch, with people losing their jobs, having reduced hours or very reduced profits from self-employment;
- after 2009 has been an exceptionally benign time for IVAs, with mortgage rates static at a very low level and PPI payouts providing windfalls to creditors.
It’s impossible to say what the failure rate will be for IVAs being taken out now. An optimistic view says 20-25%, but rising mortgage rates could prove a big problem if/when they start to happen.
The failure rates vary between firms
What this data doesn’t help with is choosing an IVA firm. A firm’s success 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?