So much has happened over the past few weeks regarding creditor demanded changes to the way Individual Voluntary Arrangements (IVA) are to be withheld from consumers in financial trouble that I thought it would be a good idea just to take a quick look at the fundamental issues of the situation.

For those readers not from the UK, an Individual Voluntary Arrangement or IVA is designed to be a fair, reasonable and sustainable way for people to be able to create a binding debt repayment plan when they are facing financial troubles.

The intention of the IVA is to distribute funds in a pro-rata, fair fashion, and to give creditors a chance to review the proposal on its merits and have an opportunity to cast a vote. Using a majority voting formula the approved IVA becomes binding on all creditors. The consumer then makes one monthly payment and at the appropriate time, the funds are distributed to the creditors.

An IVA is prepared by a licensed and regulated Insolvency Practitioner (IP). IPs are generally accountants or lawyers with additional education and certification that strive to create fair repayment proposals for both the debtor and the creditor. IPs provide a detailed and professional service and are properly compensated for that service from the funds that are pooled during the three to five year repayment period in the IVA.

The benefit of the IVA to the debtor is that it stops collection activity, binds all the creditors to the repayment plan created by the IP, distributes available funds in a fair and reasonable way to all creditors and allows the debtor to make a “best effort” to repay their debt without going bankrupt. Also, the fixed time of the IVA gives the debtor some clarity as to how long it will take to get out of debt.

As I write this, six bad actors in the credit world have intentionally determined that they do not think consumers should have either a voice or access to an IVA. These six creditors, HSBC, Halifax / Bank of Scotland, Royal Bank of Scotland, Marks & Spencer Money and First Direct (The Insolvency Exchange collective) and Northern Rock have “unilaterally” decided that consumers are not entitled to be treated fairly and that they, the creditors, will impose their will to manipulate the process to best serve their profits.

This manipulation has come in several coordinated attacks. The first front is the intentional policies to place mandatory fee caps on the very Insolvency Practitioners that are charged with putting together the IVA proposals for voting. Creditors have attempted to make villains out of IPs because of the fees they charge.

We cannot lose sight of the fact that Insolvency Practitioners are professionals that are subject to the complexities of regulation, licensing, accountability and fair service. If we are to demand regulatory compliance and accountability from IPs, then that all comes at a high administrative cost. To serve both creditors and consumers fairly the Insolvency Practitioner has to jump through all sorts of hoops and over the years, this has become harder, more complicated and more time consuming.

Long gone are the days when an IP could put together an IVA repayment plan and submit if for simple voting. Today the creditors are either reluctant to vote, flat out don’t vote or return proposals with a set of modifications that have to be made and that process adds yet more time and complexity to the case. Time is money.

Creditors today, and not just the six I named above, you know who you are, have fallen into a routine of assuming they can demand and dictate whatever pain and injustice they want to put the debtor through, a debtor whose sole intention is to repay their debt in a fair way. It is very possible that Insolvency Practitioners in the past have gone along with these growing lists of demands and modifications because what’s one more little change to help the debtor find a solution.

So the reality is that the only reason the consumer wants to put forward an IVA is so they can repay what they can afford to rather than go bankrupt. But this IVA processes has become mutated not by logic, but by the whims and wishes of the collection departments of creditors that find the process does not make their work convenient or creates a process that places the consumer under protection and outside their grasp.

The recent written demands of the Insolvency Exchange and their posse of five creditors has created a written policy where the creditors have officially created a policy of determining how much IPs can charge and how the IPs will change the way they run their insolvency practice to best suit the creditors.

Around the conference tables of the creditors, that policy makes perfect sense if we are to change society to only care about making their profits and jobs better. But that is not what the IVA was designed to do.

When creditors tie the up-front fee they can charge to the size of the debtors monthly payment, that policy seems to be designed to poke IPs to be rewarded by proposing higher monthly payments that serve the creditors, rather than proposing fair, reasonable and sustainable monthly payments that are realistic and can be afforded by the debtor.

The demanded price-cap on IP fees forces Insolvency Practitioners to earn that a lower initial fee simply because the person has less ability to repay, not because the situation is less complicated. Yet the time, liability and work that takes place for a low monthly payment debtor, by the IP, is often more than for a higher payment debtor. Creditors are saying, with their written policies, that these lower payment debtors are cast-offs and don't deserve to be treated with the same care and compassion as other people.

The lower payment debtor is typically a member of our society that is more marginalized, less safe, more at risk of having a single catastrophic event place their entire financial lives in ruin. These debtors are often single parent homes, families that are underearning, and younger or elderly debtors that have found themselves in trouble.

So when creditors intentionally create and demand a policy of tying the professional fees of Insolvency Practitioners to the size of the monthly payment the creditors would like for them to extract, it creates a policy of excluding approximately 50% of debtors from the IVA process since IPs won’t be able to afford to provide service to those debtors.

Next, creditors are demanding that IPs make investments in technology and payment distribution to make the life of the collection department easier. These investments come at yet another cost to the IP.

Creditors are also demanding that IP compensation when the plan is in place is directly tied to monthly payments collected from the debtor. This attempts to force IPs to become “hired gun” debt collectors for the creditors and further erodes the professional status of the IP as a fair and reasonable professional provider. IPs do not need to be forced “debt collectors” for the creditors. They should be fair enforcers and supervisors of the IVA agreed to between the creditor and debtor and render whatever assistance is needed by the debtor or enforce the IVA terms if the debtor is unable to reasonably comply.

Maybe rather than be incensed and outraged by the recent creditor demands that restrict access to the IVA, tie professional fees of IPs to collection quotas, and leave disadvantaged consumers excluded from a fair, reasonable and sustainable way to repay their debt without going bankrupt, maybe we should take three steps back and just go back to basics.

Maybe it is time to return the IVA back to its roots and remove all the silly modifications and force the creditors to vote out of the IVA proposal instead of having IPs practically begging creditors to vote so people can repay rather than go bankrupt.

Maybe it is time for the Insolvency Service to have whatever legislative tools they need to return the modern IVA back to the process that was intended when it was created so that we never lose sight of the fact that while having access to credit can be a beneficial part of our modern society, so is the right for people that are struggling under painful debt to have a fair and professionally represented opportunity to put forward a reasonable repayment plan in case they accidently find themselves in trouble.



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