New figures from the Insolvency Service show that early termination rates of IVAs have dropped 11% in the past year, while total IVAs have risen by almost 20,000 since 2018.
The government agency’s figures show that IVAs have risen steadily on an annual basis since 2015, although the total in 2020 was similar to 2019, with about 78,000 new registrations in both years. IVAs comprised 70% of total individual insolvencies in 2020, up from 64% in 2019.
The statistics, published on 26 February, show the percentage of IVAs registered in 2019 that were terminated within one year has decreased to the lowest level since 2014. This partly coincides with the publication of updated guidance for the IVA protocol in April 2020 in response to the pandemic.
There were 7,143 IVAs registered in 2019 that failed early. This was 11% less than early terminations from IVAs that started in 2018.
StepChange Debt Charity observed that while the one-year termination rate declined a little in 2020, reflecting forbearance arrangements introduced as part of the response to Covid, more than a fifth of the IVAs that were taken out in 2018 have terminated.
Its statement added: “Given that the benefit of an IVA is only properly realised at the end of the five or six-year period for which it is held, the risk of early termination is one that needs to be avoided as far as possible."
StepChange has previously raised concerns about the performance of the IVA market generally, given a discrepancy between sales and failure rates of IVAs among different firms. The charity said this recent data “does nothing to alleviate concerns”.
Jane Tully, director of external affairs at the Money Advice Trust, said: “These figures, showing an increasing trend in IVA termination rates, are a concern as they suggest many in financial difficulty have been directed to IVAs when they may not be the right option. In many cases, other debt solutions may be more suitable."
Tully also flagged the trust’s campaign to urge the government and regulators to stop misleading adverts, which helped drive up IVAs, appearing online. “The prevalence of online adverts that promote ‘solutions’ to debt involving insolvency procedures may well be a contributing factor to this. The government needs to step in and give the FCA the power to tackle this issue head on.”
She added: “Findings from the recent Woolard Review highlighted the need for a more joined-up approach to the debt solution market. Increasing eligibility criteria for debt relief orders is a welcome step but beyond this, we need a full review of all debt options in the wake of Covid-19.”