Insolvency experts have warned that many people are being pushed into accepting individual voluntary agreements (IVAs) when they are not suited for them.
IVAs allow debtors whose borrowing has become unsustainable to agree with their creditors to pay off a certain proportion of their debt while the rest is written off.
Recent insolvency figures have shown that their use has risen by 150 per cent in the last year ñ but this may be due to astute marketing as much as the debt problems, say some.
“In some cases bankruptcy is the most appropriate option but people aren’t generally encouraged to go bankrupt,” said Pat Boyden of accountants PricewaterhouseCoopers.
“But they are encouraged to go down the IVA route all day long on the television and radio, on the internet and in newspapers.
“The reason IVAs are so popular is because they are being extremely well marketed. There are tens of companies with hundreds of telephone sales staff encouraging people to consider them,” he told the Times.
Others have warned that some companies are making extravagant claims for IVAs, such as the ability to write off all debt in 24 hours (no hyphen), that are unlikely be lived up to.
Nor are they the consequence free option that many claim, with anyone accepted for an IVA being refused the best rate on credit for some time, said Mike Gerrard of Grant Thornton.
“Whether you do go down the IVA or bankruptcy route your credit rating will be hammered and most reputable lenders will be wary of extending you credit for around five years,” he said.
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