Individual Voluntary Arrangements: A 'Fresh Start' for Salaried Consumer Debtors in England and Wales?
International Insolvency Review, Vol.18, No. 1, pp. 5-36, 2009
64 Pages Posted: 6 Sep 2008 Last revised: 21 Aug 2012
Date Written: September 6, 2008
Since the mid-1990s the number of consumer insolvencies in England and Wales has grown exponentially. The UK's Insolvency Act 1986 offers two formal responses to personal insolvency: bankruptcy and individual voluntary arrangements ('IVAs'). While consumers have used both these debt relief mechanisms in increasing numbers in recent years, IVAs - regulated agreements between debtors and creditors facilitated by a licensed insolvency practitioner, usually taking the form of a five-year payment plan - grew faster than bankruptcies between 2003 and 2006. However, the level of new IVA approvals fell back in 2007 and the first half of 2008. This article charts the transformation of the IVA from a bankruptcy alternative originally designed for insolvent traders and professionals into a tool of consumer debt relief. It then seeks to explain both the stellar rise in IVA usage among consumer debtors and the subsequent stalling of IVA growth. The rise of consumer IVAs can be attributed largely to supply side changes in the market for debt resolution - in particular the emergence of volume providers commonly referred to as 'IVA factories' - while a sustained backlash against the procedure and the providers instigated by institutional creditors demanding higher recoveries accounts for the subsequent decline in approvals. The article concludes by considering the near term prospects for consumer IVAs within the context of the increasingly complex UK debt resolution market.
Keywords: bankruptcy, individual voluntary arrangement, consumer debt
JEL Classification: K35
Suggested Citation: Suggested Citation