Thousands of people use an Individual Voluntary Arrangement (IVA) each month to try and solve their debt problem. The Arrangement usually involves making a single monthly payment towards the outstanding unsecured debt. The payment should be based on the amount you can afford meaning that it is then easy to manage.

On the face of it this is a perfect solution. However more recently creditors have increased the demands they put on individuals before an IVA proposal will be accepted. The result of this is that desperate people are agreeing to payments which they cannot really afford which in turn leads to the early failure of the Arrangement.

Are people starting IVAs that they cannot afford to pay?

It has become common place to demand that people who wish to start an IVA must live within a standard and restrictive living expenditure budget. This is despite the claims of many creditors that they will review each individual case on its own merits. When you take into account that you will have to  stick to this budget for 5 years it is a daunting prospect.

The worry is that with creditors demanding onerous restrictions on expenditure you will enter into an IVA you cannot afford to pay. If you are in the middle of trying to manage a difficult debt problem you may be extremely stressed and not able to think clearly. As a result you may be prepared to agree to anything if you believe it will take away the pressure of your debt and collecting agents.

Going Bankrupt if your IVA fails

Agreeing to an expenditure budget that you cannot stick to will almost certainly lead to a situation where you find you cannot afford to make the payments you have agreed. As a result the Arrangement may fail. In these circumstances even though you initially wanted to make an effort to repay your debts you may decide that enough is enough and go bankrupt.

An increasing number of people declaring bankruptcy is exactly what creditors such as high street banks and the government want to avoid. This is a time when banks should be helping struggling debtors to avoid bankruptcy. Making the alternatives such as IVA more feasible for debtors is surely is one way of doing this.

BMD Tip: If you are considering the possibility of starting an IVA the key thing to remember is do not be pressured into agreeing to make monthly payment you know you will not be able to afford. This will only lead to the early failure of the Arrangement wasting time and money. It is far better to take a step back and have another look to see if an alternative solution might be a better option.