Improving IVA outcomes for all
Andrew Smith (1)
The Insolvency Panel (TIP) aims to improve outcomes in Individual Voluntary Arrangements (IVAs)
This can offer certainty for debtors and is a good deal for creditors.
However, this is only the case if the IVA is advised appropriately and if the debtor, with poor income stability and low affordability, isn’t shoehorned into it when better solutions are available.
The number of IVAs held by consumers have been higher in the past, but the fact is they could be even higher now. Numbers are held back by the debt advice community and creditors due to a lack of trust.
Although there is an enormous undersupply of debt advice and solutions, TIP thinks the numbers of IVAs arranged annually could be doubled. To do this we need to restore trust. TIP will achieve this through data, transparency, improvement and standards.
A new approach
TIP decided to base their approach to IVA referrals on a business model that builds trust. As a social enterprise TIP is donating more than half of its gross profit (and at least 40 percent of its turnover) to the TIP Charitable Trust. This trust is entirely independently run, with support from AdviceUK, and will make donations to FCA-authorised free-to-client debt advisors.
TIP will only take referrals from free-to-client debt advisors who have advised clients on every available solution and recommended an IVA as the most appropriate solution.
TIP will work with any insolvency practitioner (IP) who is prepared to share basic data on all their cases and work to TIP standards. TIP’s systems integrates with IP’s case management software providing 24/7 access to data on cases passed to them by advisors working with TIP.
The panel also uses data to improve the IVA process, by combining financial capability and debt repayment data to improve early terminations and arrears – all of which enhance creditor returns.
Our place in the debt landscape
The Money Advice Service estimates that 8.3m individuals need debt help, but only one in five are getting it.
In 2017, 59,000 individuals entered an IVA, up from 40,000 at the end of 2015 – and this figure is looking likely to exceed 65,000 in 2018.
TIP thinks it can help raise the figures further – by beating a set of problems that are holding back IVAs. These include low creditor returns, high early failure rates and declining debtor contributions, all of which make the procedure less useful to every stakeholder. These issues have been caused by a variety of circumstances such as declining disposable incomes amongst the population.
TIP aims to solve:
- Mis-sold IVAs: Free sector debt advisors say they are seeing many clients struggling in IVAs who are eligible for Debt Relief Orders. TIP will only refer cases fully advised by the free sector and won’t work with commercial lead introducers, dealing with this and other mis-selling issues;
- High early IVA termination rates: Insolvency Service figures show that nearly 13 percent of IVAs fail in the first two years. The TIP IP panel’s failure rate is half that – creditors will benefit from more IVAs going the full distance;
- Low creditor returns: TIP IP panel members have agreed to low levels of “disbursements (sometimes inflated to defray the high cost of lead introduction);
- Poor returns for creditors mean poor margins for IPs too. TIP’s lower costs to help both groups.
TIP’s role is as a facilitator and works with an engagement group of debt advisors and consumer representatives, creditors and IPs to drive its process.