Last year, the IVA hit the mainstream. Originally intended more for small business owners than for individual consumers, it went from an obscure insolvency solution unknown to most to a well known debt solution. The industry expanded hugely, and mass advertising placed the IVA firmly in the public eye.

Perhaps this year will be seen as the year the IVA bubble burst. Even before the much talked about credit crunch, creditors were becoming increasingly hostile towards IVA proposals. Hurdle rates went up from many leading creditors, and some, such as Northern Rock, seemed to vote against almost every IVA put before them. After an almost exponential increase in the number of IVAs undertaken in 2005 and 2006, this year saw approved IVAs fall significantly.

But the need for IVAs hasn’t gone away. Personal debt has gone past the £1.3 trillion mark, and consumer spending and borrowing have continued unabated, even after the credit crunch and Northern Rock crisis. The sub-prime housing crisis has only made matters worse. Initially confined to the US, the UK mortgage market has also suffered greatly, with remortgages increasingly difficult to come by in the subprime sector. More ominously, house prices have started to drop. Strong house prices have allowed many to escape their debt problems through equity release and remortgage. The UK has become a credit culture, and ordinary consumers are going to need reliable access to every debt solution to find their way out of trouble.

Despite these difficulties, the year is ending on a positive note. After months of deadlock between creditors and insolvency practitioners, the BBA industry standards and TDX accreditation process are promising signs of compromise. Not only will these measures help to clear some of the poorer IVA companies out of the marketplace, they will hopefully restore trust between IPs and creditors and ensure that more IVAs are approved and successful. Nothing is certain, but the future is looking brighter.

When facing a serious debt problem, the last thing any debtor wants to do is talk to their creditors. The first instinct is to hide the problem for as long as possible, often due to a sense of shame at missing a payment or having a cheque bounce. Most debtors feel too embarrassed to talk to creditors until they are past the point of no return and are insolvent.

People frequently get into a siege mentality as far as creditors are concerned, particularly if they have been on the receiving end of threatening letters and phone harassment. It’s easy to view creditors as the enemy – large impersonal corporations are easy institutions to dislike, particularly when they are the cause of daily concern.

But debtors should discuss problems with their creditors as soon as possible. This is the more emotionally difficult option to take, especially with dozens of credit options readily available. It’s much easier to put a few hundred pounds on another credit card than it is to confess to your bank manager that you can’t pay all your bills. Talking openly with creditors, however, can produce good results – when engaged in honest discussion concerning debt problems, they can be surprisingly reasonable. It is in their best interest to stop a debtor from going insolvent, and they will often be willing to freeze interest and drop repayment amounts if a debtor is attempting to tackle their problems head on.

How a creditor reacts isn’t guaranteed of course. An unfortunate few may aggressively demand repayment or try to place charging orders to secure their debts, but these are typically responses made by creditors who are kept out of the loop for too long.

Even if a creditor reacts negatively, there are other reasons to open a dialogue as soon as possible. A lack of communication with creditors can threaten an IVA proposal, particularly in light of the new industry standards coming in soon. Simply put, creditors don’t like it when the first they’ve heard of your repayment troubles is when an Insolvency Practitioner contacts them concerning an IVA proposal, and are less likely to consider your case positively if you haven’t mentioned anything to them, until the point of no return. Attempts to resolve problems informally, even if they break down and are unsuccessful, are crucial steps to take before taking on a serious legal solution like an IVA.

At the worst, a documented paper trail showing attempts to resolve things can only help an IVA proposal – from February, this will be a necessary part of an IVA process. At the best, early discussion with creditors can resolve a problem before it becomes a crisis.

Specific details of the industry standards proposed by the British Banking Association have emerged. These proposals have dominated the debt headlines in the past week, and with good reason – they are the best chance yet of improving IVA approval rates and improving service across the industry. The main proposals are:

Income and expenditure sheets in an IVA proposal will follow a standard model (as established by the Money Advice Trust, a debt advice charity)

This will apparently include the need for Insolvency Practitioners to carry out more thorough checks on mortgage repayments, income and other crucial figures. A good Insolvency Practitioner would have made sure these figures were correct anyway, and this will help to ensure proposals are based on solid foundations.

An agreement will be established concerning how many monthly payments a debtor can miss before they will have considered to have failed their IVA

Many forum posters have described uncertainty in what constitutes a failed IVA, and having this clearly established at the beginning will provide clarity to debtors.

Previous attempts by a debtor to settle debts with their creditors will be disclosed in an IVA proposal

Apparently this may require Insolvency Practitioner to recommend debtors try to reach an informal agreement with creditors before an IVA is proposed. In principle, this is a good thing – creditors frequently complain that the first time they hear about debt troubles, it is from an Insolvency Practitioner rather than the debtor involved. But by the time a debtor contacts an IP, it may well be too late for informal solutions. Many debtors are too ashamed to talk about their debts with anyone, especially their creditors, until things have gotten completely out of control.

Lenders will have to give a specific reason if they reject an IVA

This will certainly please many debtors who want some answers after an IVA is rejected, and could force creditors to justify rejections a little better. This isn’t likely to significantly improve the IVA system but will be a useful bit of transparency to the process.

The industry standards as proposed seem solid enough, and will provide better transparency and communication between debtors, IPs and creditors. If this helps to get the IVA industry moving in the right direction, all the better. But with minimum hurdle rates and IP fees, perhaps the two most bitter points of contention, left out of the proposals, they may not be enough to prevent difficulties arising again next year.

In a follow up to news that the British Banking Association (BBA) is looking to set out some industry standards for IVA providers on advertising, advice, information provided and transparency, there has been a response from IVA providers. R3, the trade association which represents 97% of the Insolvency Practitioners in the UK, has provided a cautious endorsement for the proposals.

This is just the kind of backing that the plans are going to need in order to be effective. Division within the industry has caused enough problems for the ordinary debtor as it is, and limited backing and agreement on this new scheme would have made it at best ineffective, at worst detrimental.

It is a good sign that R3 are, provisionally at least, on board. The British Banking Association will naturally be approaching the problem from a creditors angle – the danger would be if the creditors were attempting to dictate unreasonable terms to Insolvency Practitioners. IPs would be faced with the choice of compromising their standards in order to be approved by the BBA and have a more favourable relationship with creditors. Ironically, in these circumstances, it would be the companies that had been approved that would be likely to provide the worst service. But if R3 have given their support, it is likely that the industry standards proposed are sensible and workable, designed to cut down on misleading advertising and poor service.

Of course, ‘the proof is in the pudding’, and R3 are sensibly waiting to see how the industry standards that have been proposed play out in reality before it provides full support. Graham Rumney, Chief Operating Officer for R3, commented “I am very pleased that the IVA forum has been able to agree these standards. However, they rely very much on good faith from the banks and the BBA’s assurance that their members will abide by the standards set down.” But there is a growing dialogue going on, and there are strong hopes that both sides of the debt industry will reach an agreement that will provide effective IVA service for the debtor.

The rapid growth of the IVA industry has caused problems, but with some tighter controls on advertising, greater transparency and above all more free dialogue between creditors and IPs, the entire system stands to be substantially improved.

The tricky issue of IPs fees for an IVA has been touched on many times before, but deserves specific attention. IP fees are paid from the funds recovered from the debtor. Under the current system, IPs receive their fees (typically between £6000 and £8000) before any funds are returned to creditors. Creditors are unhappy both with the size of IP fees and with how they are paid – in an IVA that fails early on, the IP may have been fully or partly paid, while the creditors will have received no share of the funds recovered.

At first, it seems only reasonable that IP fees are spread equally over the entire term of the IVA. Spreading them out in this way would deter unscrupulous firms from putting forward unrealistic IVAs, pocketing the fees, and leaving the debtors to fend for themselves once they begin to struggle with their unrealistic budgets. The change would incentivise good service throughout the IVA – a common complaint from many debtors is that their IP gives them plenty of contact and assistance while the proposal is being put together, but seem to disappear once the IVA has been approved. Paying someone entirely upfront for a service that is going to last for 5 years can quite obviously lead to poor service in some cases.

It isn’t quite this clear cut, however. IPs point out that most of the research, paperwork, negotiation and other work does come at the initial stages of an IVA, and so a larger payment of fees in the initial stages makes sense. In addition, IPs are paid from funds recovered from a successful IVA – if the IVA doesn’t go through, the IP isn’t paid. With approximately 20% of IVA proposals being refused, this means that IPs are effectively working for free much of the time. Some companies demand separate upfront fees to counteract this risk, but as in any situation where upfront fees are demanded for an uncertain outcome, this policy is open to abuse. IVAs should remain free at the ‘point of sale’, which accounts for why IPs feel justified in asking to be paid first when an IVA is approved. Spreading IP payments evenly throughout the length of an IVA is not a sensible policy.

Some degree of IP fee scaling should be implemented, as this would placate creditors and might help to weed out the small minority of poor operators in the IVA market. IPs should be taking on viable clients and managing them through successful IVAs, not pushing through unrealistic proposals and providing poor service. Scaling of fees would reward the good companies and punish the bad. But with the majority of an IPs work coming at the beginning of an IVA proposal, it is only fair that they should be paid a large proportion of their fees in the initial stages of an IVA.

The story of John Darwin, the man who faked his own death in a canoe accident five years ago, has captivated the country for over a week now. With its soap opera developments, it is the perfect story for the media – a family saga played out on the public stage, with crime, money, deception, and a seemingly endless stream of unlikely new developments (the latest one being the secret tunnel running between two houses, used by Mr Darwin to avoid running into family and friends.)

While the coverage has mostly focused (perhaps a little too gleefully) on the amateurish nature of the deception, the ease with which it has been unravelled, and the divisions it has placed between the Darwins and their sons, the reasons behind the scheme have only been lightly touched on. It has become apparent that Mr Darwin faked his death to avoid his debts, accrued after his business folded. No exact amount has been placed on these debts, but they apparently ran into tens of thousands of pounds.

While the lengths that Mr Darwin went to in order to escape his debts go far beyond anything that most heavily indebted people will have tried, the beginning of his story will hardly be unfamiliar to regular visitors of IVA.co.uk. A business that goes wrong, the struggle to make minimum payments, the threat of bailiffs and the sense of shame and feeling of no escape are all part of many people’s debt experience. The family conflicts and secrets are equally common, with so many of those in debt feeling unable to share their troubles with those closest to them.

The Darwins’ story seems unreal, but it stands as an extreme example of how debt can drive people to desperate and irrational acts. Its dramatic conclusion shows that running and deception can only go so far – by failing to confront their problems, the Darwins now face the threat of imprisonment. Worst of all, their deceptions may have cost them their relationship with their sons. Above all, the story illustrates the importance of honesty and bravery in the face of debt – no one can hide from their troubles forever, and the longer you run, the  harder it is to turn things around.

In the wake of news that TDX is going to start accrediting IVA companies , another new development promises to shake up the debt industry in the New Year. The British Banking Association, in conjunction with the Insolvency Service and several IVA companies, is going to draw up a set of industry standards for IVA providers. These standards will cover advertising, information provided, advice and transparency of IVA companies, and are expected to be in place by February. The official press release from the BBA can be read here.

Good news, though it will be wise to reserve judgement on these changes until they are actually put into place. It isn’t clear how they are likely to work with, or be in conflict with, the requirements for TDX accreditation. The last thing the industry needs at this point are too many ’seals of approval’ that don’t mean anything. The marketplace is crowded enough as it is, and needs reliable monitoring, not more confusion.

In any case, the regulation of advertising is long overdue. Many IVA providers have been rightly criticised for presenting IVAs as an easy option to make debts disappear, making little mention of the hardships involved in an IVA and making promises of unrealistic debt writeoffs. Setting out some industry standards for this will help weed out some of the more unreliable companies, and provide better quality of service across the board.

But a point of serious concern is that no formal agreement on fees has yet been reached in these new industry standards. This is continues to be an area where creditors and IPs disagree, both in the cost of IP fees and how they are paid throughout the IVA. This is a matter complex enough to warrant a blog post of its own – suffice it to say for now that this problem is likely to rear its head again in the not too distant future.

Overall, it is another sign of improvements to an industry that has been looking very unsteady of late. With the market flooded with hundreds of companies that run IVAs, it can be difficult for a debtor to know who to trust. Sites like IVA.com, and, of course, the IVA.co.uk Forums have previously been the only way to tell the good companies from the bad. If they work, the industry standards set by the BBA will give a much needed ‘gold standard’ to the companies that abide by them, making it easier for debtors to choose respectable companies. After a bad year, it looks as though creditors and IVA companies have realised that they need to work together, and that can only be a good thing for anyone who is struggling with a debt problem.

Yet again credit cards have cropped up in the news for all the wrong reasons. In the wake of a raft of stealth charges earlier in the year that promise to surprise unwary consumers over the holiday, the Royal Bank of Scotland and Natwest (part of the same banking group) have announced that they are going to be cutting the interest free period on their credit cards from January 1st, giving cardholders a shorter period of time in which to pay off an outstanding balance before they incur charges. Rather than the standard 25 days, some customers will have only 15 days to pay their bills.

It’s the specific nature of these changes that makes them look so cynical. It appears that the interest free period is only being cut for customers who pay back their balance in full each month. Simply put, if you pay your credit card bill off in full each month, the bank isn’t making any money out of you. It makes profit from late payment charges and interest on outstanding balance, and it’s a very lucrative business. But recent high profile cases of customers claiming back bank charges has forced banks to find other strands of income, and this has lead to new charges, shorter repayment times, and hidden costs across many leading credit cards.

The timing couldn’t be worse, with many consumers (even those who are most diligent about paying off their cards on time) likely to have a larger than usual bill on their credit card over Christmas. January is to be the time when people are going to need most flexibility on their credit cards, not be hit with sudden demands for repayment. At best, it is a poorly managed change that will inadvertently punish unsuspecting consumers. At worst, it is a cynical attempt to “catch out” some of the bank’s most reliable customers with unexpected charges to turn a little profit.

It would perhaps be overly cynical to connect this with news last week in the Financial Times where RBS is expected to announce a write down of some of its assets of up to £2 billion. And RBS itself has come out in defence of the charges. But the argument they put forward is weak – the bank is effectively penalising some of its most loyal (though perhaps least profitable) customers immediately after the Christmas period. With banks seemingly changing the ‘rules’ for their products every month, credit cards are increasingly looking like more trouble than they are worth.

TDX (formerly known as TIX), the organisation that represents a number of large creditors on IVA matters, has recently announced that it has ‘accredited’ Debt Free Direct, one of the biggest IVA providers in the business. This process of accreditation has been proposed recently by TDX, involving an audit of IVA providers to reach an agreement on fee structuring, the thorny issue that has been causing dispute between creditors and IPs. After a successful audit, where fees and running costs are agreed to the satisfaction of both parties, the IVA company is accredited.

TDX have been something of a boogeyman in the past for IPs and debtors alike – they have been accused of demanding hurdle rates that are too high, stopping many IVA proposals before they start. Some have likened TDX’s insistence on certain levels of IP fees to price fixing. Many people in the industry may see TDX as part of the problem rather than the solution, and will resent yet another level of regulation, especially one imposed by creditors.

It is too early to see what the full effect of TDX accreditation is, and what happens to IVA providers that fail (or refuse) to work by the conditions that TDX has set. It is important that IVA companies don’t compromise their quality of service in order to be accredited. As Site Manager Andy Davie often says, it isn’t about getting an IVA approved, it’s about getting it completed. There is an increasing danger that between creditors demanding higher returns and struggling IVA companies in need of profits, debtors will be squeezed too hard in unrealistic IVAs.

But the IVA industry is changing. It’s been a disastrous year for many companies, with Accuma, Debt Matters and several others all taking a pounding on the stock market. Despite the continued growth of UK debt, accepted IVAs are down 14 per cent on the previous year due to creditor hostility. Things are going to have to change in order for the industry to keep providing a good service for debtors, and TDX, as one of the more significant organisations on the creditors’ side, at least seems to be trying to work with IVA providers towards some kind of agreement. So long as their conditions for accreditation are reasonable, and not overly skewed towards the interests of creditors, the process could be a good one.

TDX accreditation doesn’t mark a company as providing top quality service from the debtors perspective, but, hopefully, it will label a company as having a reasonable fee structure, a good system for IVA proposals, and one which creditors are inclined to be reasonable in negotiating with. Creditors have frozen up the marketplace with their increasingly strict conditions for IVAs, leaving many debtors struggling with debt management or sinking into bankruptcy. TDX accreditation may be one of the first steps to thawing it out.