A google search using the terms 'IVA + £15,000' throws up a cascade of links to sites offering IVAs or advice about IVAs to debtors who owe more than £15,000 but there is no indication as to why this sum has become the debt threshold for IVAs.
There are some IVA providers offering arrangements for debtors owing £10k and a few have even upped their threshold to £20k but that magic figure of fifteen thousand seems to have emerged as the benchmark. Why ?
There is nothing in Part VIII of the Insolvency Act which says that IVAs can only be provided to debtors who owe more than £15k . Indeed, the only figure mentioned in the Insolvency Act in relation to personal insolvencies is the sum of £750 that a debtor must owe before they can be declared bankrupt.
Perhaps Individual Voluntary Arrangement.com inadvertently provide an answer. Their google ad came up in the search. The ad reads: "Comprehensive IVA Advice. Write off up to 85% of your debt with an IVA".
If we ignore the questionable claim that 85% of debts can be written off in an IVA and follow the google ad link to their web site we find that anyone with debts of less than £10,000 is provided with a further link which leads them to the web site of Consolidate UK.com where applicants can apply for a debt consolidation loan.
If we also ignore the fact that independent debt advisors and even sites like MSN Money warn against taking up consolidation loans, we can probably tease out the answer to our question.
Self-styled 'debt advisors' earn commissions from both consolidation loans and IVA referrals but it seems a fair guess that the difference in profits between the two comes in somewhere around the point where debts hit the £15,000 mark. This is probably where it becomes worthwhile for the advisor to sell an IVA ahead of any other alternative.
Clear Start provide a useful explanation on their web site because they admit that "creditors will reject an IVA if they see that the majority of the funds paid into it are going towards the Insolvency Practitioner's fees. As a guideline, at least 60% of funds paid into an IVA must be paid towards the creditors".
To put this the other way round, it seems that the level of debt needs to be high enough to achieve target fees that can be equivalent to 40% of the sum that the debtor pays into the IVA each month.
Most IVA providers like Clear Start also insist on a minimum monthly payments of around £200 over the lifetime of a 60 month IVA. Again, this has nothing to do with the requirements of the Insolvency Act but it does establish a base level for the fees that the IP is trying to achieve.
So, the benchmark for the amount that debtors owe before they will be nominated for an IVA has nothing to do with the provisions of the Insolvency Act. The threshold is set at a point where the major providers can achieve the IVA sales volume and the rolling profits needed to cover the huge marketing and TV advertising spend that sustains their market share.
And as IVA fees have escalated - along with the numbers of debtors taking up IVAs as a result of the spend in TV advertising - we have reached the absurd position where the government has proposed the introduction of Simple IVAs (SIVAs) which will be available to debtors owing (quelle surprise) less than £25,000 and the fees will also be less than those charged for an IVA.
There was of course nothing whatsoever in Part VIII of the Insolvency Act to prevent any competitively minded IP introducing a simplified and less expensive IVA but it seems that the 'debt market' is the only market where competition pushed prices up, not down.
Interesting too, that in such a closely regulated field as insolvency that the domain name SIVA.org has already been sold and is up and running but the government might like to note - before they introduce any new legislation - that the site is already offering 'Simplified Individual Voluntary Arrangements' to debtors. Although, in this case, there is of course a debt threshold of £15,000.
The DTI and The Insolvency Service clearly have a firm grip on the insolvency market.
Sunday, 18 February 2007
Who set the IVA debt threshold at £15,000 ?
Labels:
Clear Start,
Consolidate.uk.com,
Insolvency Act,
IVA Fees,
SIVA
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