IVA help may be contributing to July debt write-offs

New data has shown that millions of pounds have been written off every day in July as consumers seek solutions for their debts.

Credit Action's figures for the month showed that banks and building societies cancelled £20.71 million of personal loans every day of the month, something that may be related to consumer insolvency.

While the whole debt may be cancelled through a declaration of bankruptcy, an alternative is that of individual voluntary arrangements (IVAs).

These work not by writing off everything, but through an agreement with creditors to freeze the interest and accept lower repayments each month, which is binding on all to whom money is owed as long as 75 per cent of them agree to the deal.

It means lesser payments can be made over a period of up to five years, with all debt written off at the end, while the consequences for a credit rating and potential disqualification from holding certain positions of employment is not as severe as it would be with bankruptcy.

Another advantage may be that an IVA can be kept confidential, whereas bankruptcies are automatically reported in the weekly London Gazette and can be covered by the local press.

The gradual rise in the level of consumer credit borrowing may lead to more people needing to consider IVAs and the latest bank of England figures have indicated the level of increase was steady in June.

It rose by £0.4 billion in the month, in line with the average for the past six months.

By James Francis