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 – 2018 has data 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 at the end of 2018 for IVAs started between 2008 and 2017.
The yellow column shows how many IVAs registered in a year are still in progress. So for IVAs that started in 2017, by the end of 2018 a small number had completed, quite a few had already failed but most were still ongoing, as you would expect.
But look at the earlier years. Shouldn’t all IVAs that started in 2008 – 2011 have all finished by the end of 2018? They are all at least seven years old but some of them are still dragging on – they haven’t completed successfully, they haven’t failed, they are still open.
9% of IVAs registered in 2011 are still continuing – I think that is a high percentage.
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. Until an IVA is completed, many people feel stuck, with their life on hold until the IVA marker goes from 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;
- they may need a new car but only be able to get car finance at a dreadful 40% or more rate of interest.
The problem may be getting 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, which is good, but the downside is that IVAs overall will tend to get even longer.
How many IVAs fail?
Not all IVAs will finish properly, with people’s debt being written off. In a 5 or 6 year contract something can go badly wrong and that isn’t the fault of the IVA firm – it’s just life.
But in the last few years, the statistics are showing that a lot more IVAs are failing in the first few years, and that isn’t good:
- 9% of all IVAs that began in 2017 failed within the first 12 months;
- 18% of IVAs started in 2016 failed in the first 24 months.
But with the early failure rates rising such a lot, it seem likely that IVAs that started in the last few years may have a final failure rate of over 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 are a lot more IVAs set up with monthly payments of less than £100. These IVAs are very vulnerable to someone having either lower income or higher expenses because there isn’t much room to reduce the monthly payments 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?