The Debt Resolution Forum yesterday warned that there could be an "explosion" in the number of reported bankruptcies and a debt crisis if lenders continued to block debtors from obtaining individual voluntary agreements (IVAs).
The Debt Resolution Forum (DRF), represents 28 of Britain's IVA firms. IVAs enable those with large debts to reduce their repayments by reaching an agreement with banks which have lent the money. The banks have become increasingly wary of granting IVAs.

The number of IVAs taken out fell by 15% between April and June. Chris Holmes, DRF chairman, said this was a result of "artificial barriers and hurdles" imposed by banks and credit card companies "leading to hundreds of clients ... being advised that an IVA is no longer possible for them," rather than lack of demand.
Colm Duffy, senior partner at McCambridge Duffy, said he had seen bank IVA rejections rise from 2.5%-3% before what he perceived as a change in creditors' attitudes, to 15% "though this is lower than the industry average".

Under the rules of accepting IVA status, over 75% of the creditors must vote in favour of the debt solution for the IVA to be valid. This means that if banks oppose the deal, they can block it.

Personal debt has increased rapidly in recent years as credit has become easier to obtain. This has seen some people struggle to repay credit card debt and bank loans. The Insolvency Service recently said there were 26,956 individual insolvencies in England and Wales between April and June, a decrease of 8.1% from January to March this year, and an increase of 4.2% on the same period last year.

Mr Holmes accused creditors of being "inflexible" and not taking into account the interest rate rises and increasing costs of living. People currently emerging from two-year fixed-rate mortgages could see payments increase by 50% and British consumers already owed more than £1 trillion, he said.

Banks have recently been arguing that IVA returns are too low. Individuals with IVAs make reduced payments towards their debt total during five years, after which the debt is settled. Creditors, therefore, do not receive the full amount of the debt and can get as little as 30% back.

Fees received by insolvency practitioners - individuals required to set up an IVA - have also been criticised by creditors as many practitioners take fees up front, allowing them to make a profit whether the IVA is completed or not.

Mark Hover, head of The Insolvency Exchange (TIX) which represents HSBC, HBOS and Royal bank of Scotland, First Direct and Marks & Spencer's Money, denied banks were making it more difficult for debtors to access IVAs.

"Our acceptance level has been fairly consistent over the last six months [with] about 80% being accepted."

TIX has sent out two letters to insolvency practitioners stating it believes practitioners should receive the first four or five payments upfront and 15% for each payment after that.

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