The future of IVAs: How creditors can easily make them work for everyone

As those of you who know me will be aware, I’ve been working in (and shouting about!) personal insolvency for many years. Following the launch of new ‘debt-tech’ collective Trustfolio (of which I’m a co-Founder), if there was one message I could give to creditors in 2022 it would be: Please vote responsibly!

Don’t worry, I’m not about to stand for election anytime soon, nor am I going to talk about party politics! But in the wake of the Financial Conduct Authority’s Woolard Review published in early 2021 which proclaimed Individual Voluntary Arrangements (IVAs) as a solution to be broken, and in the face of the Insolvency Service’s current review, it’s more important than ever that I tell the side of the story that is often overlooked.

Although I believe in IVAs as a solution, I thoroughly understand why many dislike them: they complain they’re badly regulated, don’t deliver what they were intended to, have a high failure rate and overall, offer a poor customer journey. It’s hard to disagree. But that doesn’t mean we should throw them out and start again. After all, regulatory and legislative change can be time-consuming and costly so if there are ways that we can improve what’s already there, we could bring about change more quickly and effectively.

Almost everyone agrees that the IVA is a great debt/insolvency solution when used in the right circumstances. But whilst they attract very vocal criticism from the consumer lobby, they often don’t get the attention they deserve from the creditors the consumer owes their debt to. Believe it or not, some creditors vote on IVAs without actually knowing which way they have voted, some never vote at all, some do but always reject IVA proposals no matter what the circumstances are, some reject because they think it’s the safest thing to do or they don’t have a policy position, and some ignore them altogether because they simply don’t have the resource or don’t know what to do with them.

Creditors don’t realise how much power is in their hands, right now, today. Together, they have the power to revolutionise IVAs and dictate the terms for the good of everyone involved, including the consumer-in-debt.

Creditors need to be able to distinguish between cases that should be approved and those that need more careful consideration. They need to constructively challenge the exceptions, but as early as possible so as not to cause adjournments and unnecessary delays. They need to push back on cases if they should obviously be taking other insolvency routes, like Debt Relief Orders (DROs) for example. They need to be ensuring – especially if they are FCA authorised firms – that they’ve voted for what they consider to be the right outcome for their customer and be able to demonstrate they have done so.

One of the problems that stops creditors doing some or any of the above is the complexity, variety, and volume of the paperwork involved in IVAs. The answer to that problem is technology. That technology exists today and can be used to simplify the process and enable creditors to easily identify and ask those all-important questions in good time.

By the way, I’m not suggesting the humble IVA is without fault. It’s not 100% fit for purpose in today’s economic environment – it was created in the heady days of the mid 1980’s (before I started senior school) – and hasn’t really changed much since. We need to modernise it and I’m keen to contribute to the Insolvency Service work in this regard.

In the same way an informal payment arrangement like a debt management plan can be varied according to a change in a particular consumer’s circumstances, so should there be a facility for a flexible IVA, catering for the self-employed with a seasonal income. And as for regulation? I’m not sure a single regulator alone is the answer. I think it needs to be a bit more radical thinking about that, but that’s a story for another day.

If creditors are given the tools to ‘vote responsibly’, they will. That’s why we developed Trustfolio’s IVA Management Platform. It allows creditors of all shapes and sizes to self-serve in a user-friendly way, securely sharing data with Insolvency Practitioners to speed up the process while making it easier, most cost-effective, and, most importantly, fairer for all. Technology doesn’t have to replace human interaction; it just needs to enable better decision-making by giving those involved in the process all the information they need at their fingertips.

We CAN make IVAs work better for everyone, and we’re already working with creditors to utilise our technology to prove this in practice. Watch this space for case studies…