Over a third of IVAs to fail, according to government

The report found that 32% of IVAs started in 2016 have failed – the highest since 2009.

It also said that: “Because 38% of IVAs in 2016 and 60% of IVAs remained ongoing as at 31 December 2021, these numbers are likely to increase further”.

Emergency provisions during the pandemic enabled people to have longer repayment holidays, and consequently termination rates fell – bringing distorted statistics.

Therefore, it will be longer before these IVAs complete. Until then, more are set to be failing as emergency breaks have ended, and a severe hike in fuel and energy prices bring a cost-of-living crisis.

“Historically, lifetime termination rates have typically been approximately 5-6 percentage points higher than the rate after four years,” the report said.

There are several reasons why IVAs fail.

One reason is that the Financial Conduct Authority (FCA) only partially regulates the insolvency market, which enables IVAs to be sold when a more adequate debt solution (such as a Debt Relief Order) might be forthcoming.

IVA provider Stepchange has said that insolvency practitioner rules ought to enforce stronger rules around individuals receiving “appropriate advice” before being referred for an IVA.

It also called for enhanced “monitoring of large providers” and for termination rates to be published by firms.

Another reason for failing IVAs is an increase in lower monthly payment plans. They become more vulnerable, because the lower the payment, the less room there is to reduce it further. Should repayment be impacted by adverse economic conditions, the IVA will fail.

2022 is also set to see higher inflation, resulting in more under-pressure IVAs.