Hi,

Hot topic the alleged misselling of IVAs and the rest.

Organisations contacting those in IVAs and offering 'advice' seem to be on the increase which appears to be causing quite a stir amongst some in the IVA Industry. From what I can see they are obtaining the details from the Insolvency Register and possibly hoping to get lucky with an indiscriminate mail shot.

I would go along with the view that this is somewhat irresponsible with some organisations worse than others and would agree that making money out of the debtor is the first concern by some and I would include the IVAC in that. However it is also fair to say in my opinion that if there were no problems with IVAs and if the debtor was genuinely given full and proper advice on all their options at the outset then how could these organisations exist? I would agree that you could petition for bankruptcy yourself without paying these people anything, mind you I dont believe everyone would feel comfortable filling in a few simple forms as one poster has put it, after all if it was that simple what does it say about the IVA they may have been in?

My view on these type of organisations / mailshots is always get proper advice before you make any decisions, from at least a couple of sources, including one independent.

1.) All people who declare themselves bankrupt or go into an IVA or who are declared bankrupt go on the insolvency register. This list is free to search because it needs to be accessible to, amongst others, credit reference agencies. An IVA or bankruptcy make you a massive credit risk.

2.) The IVA Council sends the letter but from what I can see they immediately refer people to UK Bankruptcy Ltd. According to the UK Bankruptcy website: http://www.bankruptcy.co.uk they have been doing bankruptcies for a while now.

3.) This would be the same as the "class actions" which aren't happening in the bank charges cases then? UK law does not have a concept of class action but it does have a concept of legal precedent. Presumably enough cases will go through for the legal precedent to be set and for some sorts of parameters to be established. The Insolvency industry is in dire need of such parameters. There are people being advised to go into IVAs who are on disability benefits and are unable to work, people who have retired and are on state pension, people who are single parents without assets of any kind having to use child benefit and working tax credits to pay their IVAs. In these cases, for avoiding the "horrors" of bankruptcy (because obviously disabled people in council houses would be severely restricted by being unable to act as a director of a limited company for 12 months) these people are living below the bread line to pay their IVAs. They then turn to the CAB who advise them to stay in the IVA because people like you are crying foul. Understand that 80% of IVAs in existence are absolutely fine. The mis-sell concerns the MINORITY of cases. And in those cases people should not have been advised to go bankrupt in the first place and are there solely for the benefit of the IVA company.

4.) Why charge for a bankruptcy petition?

I know of a gentleman, in his 30s, educated at one of the top UK universities with a science honours degree, an IQ in the high 140s, who built websites for some of the top car manufacturers in Europe. Due to unfortunate circumstances he was required to declare himself bankrupt and spent weeks filling those forms in, making sure everything was correct, worrying that he had done everything correctly in the bankruptcy petition. His story is that this wasn't easy given the harassment he was getting from his creditors and because he knew of the dire consequences of filling forms in incorrectly. His was a borderline case - an IVA could have worked, he opted for bankruptcy, his choice.

But in many of the mis-selling cases deal with people who don't cope well with written forms, people who would rather pay all their working tax credits than have to fill in a bankruptcy petition. These are people who, unlike yourself, are not clever, intelligent, bright people. People who take financial advice from their mates down the pub. People who, in short, will struggle with the paperwork. And that doesn't even consider the fact that in every well regulated industry - financial, legal, pharmaceutical - there is 100% truth and 100% truth. You know yourself that the truth is subjective when it comes to insolvency as it is in so many other matters, the truth can easily be a matter of opinion. Did you really fritter away all that money? Or did your partner divorce you and run off with your life savings leaving you destitute? Or was there illness, deaths in the family, young kids to bring up? Where relevant to the narrative of a bankruptcy petition these will be brought in. But you wouldn't necessarily know to do that unless you had 10+ years experience in writing bankruptcy petitions.

The fact is a bankruptcy petition is going to be the longest document some people will have written in their whole lives and it will affect the next 7 years of their life with ramifications that could stretch further still. Are you suggesting that people blithely trust their instincts when it comes to such a crucial document or would it not be sensible to get some tried and tested professional advice.

Yes the £1,050 that UK bankruptcy charge is a lot of money. But if by doing their job they prevent a 3 year Income Payments Agreement of £100 / month which would cost the bankrupt £3,600 over that period, they are more than paying for themselves. Yes the Official receiver costs money when he or she does their work but the cases under discussion, the mis-sells, are cases where people didn't have the resources to go into an IVA in the first place and shouldn't have been there.

Bankruptcy is not a trivial matter. Some people ought to have to face up to their financial mismanagement. But there are plenty who are not there of their own doing and there but for the grace of God go I.

I would imagine that most people who are extracted from a mis-sold IVA are glad to put the whole experience behind them and want to get on with their lives, wouldn't you?

Why wouldn't someone petitioning their own bankruptcy get an IPA if they'd been in an IVA? I get the impression that you believe that the mis-selling of IVAs is a myth. Very well, in that case all those in IVAs can surely afford their payments then, after all an IVA is court approved and what court would approve an IVA that required unaffordable repayments? So the court sees you were in an IVA, they then say "well you could afford your IVA payments of £450 / month (despite being a single mum on benefits with 3 kids) therefore we have no problem in requiring an IPA of £200 / month".

Obviously this is just an example. But tell me it doesn't happen. Tell me that every person you know who has failed their IVA and petitioned their own bankruptcy did not get an IPA. If you are in an IVA and going bankrupt then maybe your circumstances changed. But if your circumstances are broadly as they were when you started the IVA the question has to be asked - why were you in an IVA in the first place? Are people going into IVAs being given an unrealistic picture of bankruptcy in order to extract IVA fees and payments from them?

Finally the reimbursement of IVA fees.

As you are no doubt aware the issue of IVA mis-selling hit the headlines about 6 or 7 months ago. In order for IVA contributions to be returned by the IVA supervisor these cases have to go through the courts. The bank charges cases are, I know, different issue but it involves the courts. These have taken 2 years to come to court and are on going. Presumably there hasn't been enough time for the cases to come to court yet?

Hi Ivabigun,

In my opinion you make some good points and answer the questions very well, however I am a little concerned with regards to your take on advice given by the Independent Advice Agencies relating to IVAs, some of which assist people with bankruptcy for free.

The alleged IVA misselling debate is all over the internet, in newspaper articles and has been the talk of the Debt Advice Industry / Sector for some time now and shows no sign of going away. It is therefore amazing to me that there are some in the IVA Industry who do not seem to acknowledge there is a problem here, although I accept that and have indeed spoken with some that do.

I understand there are various estimates with regards to IVA failures, some say 30% and others suggest that approx 45% of IVAs do not run their full course, now someone correct me if I am wrong but this runs into thousands and thousands does it not?

On another point I am sure everyone who views this forum is aware we are in the grip of what some call the 'credit crunch' and coupled with the rise in living costs, petrol, food, mortgages etc and the return of negative equity.

With the above in mind I just wonder how many more in IVAs will be tempted by organisations like the IVAC, or those not in IVAs for that matter, just give up the struggle and opt for bankruptcy, some say its just a matter of time!

Pincer.

Look at the figures.

2003: 35,603 personal insolvencies of which 7,583 IVAs and 28,021 bankruptcies. (21% IVA)
2004 (when bankruptcy went down from 3 years to 1 year) 46,650 insolvencies = 10,752 IVAs + 35,898 bankruptcies. (23% IVA)
2005: 67,584 insolvencies = 20,293 IVAs + 47,291 bankruptcies. (30% IVA)
2006: 107,288 insolvencies = 44,342 IVAs + 62,956 bankruptcies. (41% IVA)
2007: 106,645 insolvencies = 42,165 IVAs + 64,480 bankruptcies. (39.5% IVA)

Stupid question:

Why is an insolvency solution that is

1.) generally vastly more expensive than bankruptcy both to the debtor and the creditors
2.) privately acknowledged within the insolvency industry to not be worthwhile in 90% of cases
3.) has a failure rate of 48%

doubling in terms of total proportion of insolvencies and increasing by 750% in terms of total take-up given that it performs so poorly?

Easy - 3 reasons.

1.) The government does not want to encourage bankruptcy and prefers IVAs largely for political and publicity reasons
2.) IVA companies can make a lot more money marketing and selling IVAs - with nominee and supervisor fees running into the thousands per year per IVA.
3.) Creditors think IVAs will give them a better return than bankruptcy (25p in the £1 vs 4p in the £1) though in reality given the IVA failure rates, creditors are starting to get frustrated with IVAs, forcing agreements to be higher and essentially further exacerbating the situation.

IVAs were originally devised in the 80s for businesses, for businessmen and for those on higher incomes who could not go bankrupt for professional reasons. They were never supposed to be a general solution for insolvency which is why they aren't a general solution for insolvency, hence the failure rates. That's not the problem. The problem is that they are being mis-sold to members of the public ground down by poor debt advice from the banks followed by harassment from debt collection agencies that can leave them suicidal at times. These people made bad decisions when they were in their "right mind". By the time they're loopy from all the stress and hassle, when the IVA company comes along they are absolutely sitting ducks.

The problem is that the insolvency service are not acting responsibly and taking to task the IVA companies who mis-sell IVAs that then fail.

Hi Ivabigun,

Leaving any possible disputed business ethics or side out of this I would say your last post is well presented and makes interesting reading to say the least.

You pull no punches here and in my opinion you make and raise some legitmate points and issues which I suspect will make uneasy reading for some in the IVA Industry.

Ouch !