In 2006 a record £1.4 billion was written off as a result of individual voluntary arrangements, according to research by KPMG
The average consumer entering an IVA owes £52,000
It is twenty years since the IVA was introduced on 29 December 1986
Creditors face writing off at least £1.4 billion in bad debts as a result of the number of people who have entered into Individual Voluntary Arrangements over the last year, according to data analysed by professional services firm KPMG. Our research also shows that people as young as 21 are running up debts that are typically three times their annual income, with the average IVA debtor owing £52,000 proposing to repay only 39% of this sum. The record amount of debt being written off comes two decades after the IVA was introduced.
Steve Treharne, Head of Personal Insolvency at KPMG, commented “The IVA was introduced twenty years ago to provide entrepreneurs with an alternative to bankruptcy. Typically the sorts of debts we have seen being dealt with by IVAs in 2006 are personal loans, credit card balances and other forms of ‘buy now, pay later’ unsecured loans. Most of the money is borrowed to meet “current” expenditure (including lifestyle items such as holidays) rather than to acquire assets or to fund a business. We estimate that more than 3,000 people entered into IVAs with debts exceeding £100,000 in 2006. Given so many people with enormous debts, and the high average level, too many people have debts that they have no realistic hope of repaying. Any excessive spending over Christmas and at the New Year sales, especially where goods are paid for on credit, risks tipping even more consumers over the edge.
The IVA is an increasingly popular way forward for many people in financial difficulty as it offers them an opportunity to draw a line in the sand and restructure their finances. In the first few years of their existence, IVAs helped less than 2,000 people each year. Based on our research, we estimate that around 45,000 people used the IVA procedure to write off a portion of their debts in 2006, an increase of more than 100% on the previous 12 months - a level unimaginable when Parliament was enacting these laws. This compares with estimates that around 65,000 people were declared bankrupt in 2006, taking total personal insolvencies to around 110,000 – more than 100,000 for the first time ever. ”
Treharne added: “Several lending institutions have commented on these record levels and on the limited extent to which the IVA advice sector is regulated. Although the government has made it clear that it has no plans at this stage to strengthen regulation, several steps have recently been taken to address these concerns. They include the launch of a new body to perform a representative function for leading providers of IVA advice and the possible introduction of licensing specifically for insolvency practitioners specialising in personal insolvency. It is therefore essential that all involved continue open dialogue about the solutions which are to be offered to the increasing number of consumers struggling to manage their debts.”
-ENDS-
Further information:
Richard Griffiths, PR & Communications Manager, KPMG Corporate Communications
Tel: 0207 694 2594
Mobile: 07768 020437
Email: richard.griffiths@kpmg.co.uk
KPMG Press Office: 0207 694 8773
Mark Sands, Direct of Personal Insolvency, KPMG Restructuring Tel: 020 7694 1865
Mobile: 07973 614665
Email: mark.sands@kpmg.co.uk
