A new code for Individual Voluntary Arrangements has been published by the government and has received a cautious welcome from consumer groups. The use of IVAs have grown considerably in recent years as more and more people find themselves in debt but are reluctant to opt for bankruptcy. In 1998 just 500 IVAs were set up but by 2006 this figure had risen to over 44000. The growth in the use of IVAs had led banks and other lenders to become increasingly concerned about their use and in many cases refuse to accept them.

An IVA is a formal, legal agreement between a debtor and creditors in England or Wales leading to a freezing of debts. An IVA requires the lender(s) agreement. In return, an amount is paid back every month for a set period, usually five years, after which the remainder of the debt is written off.

Some IVA providers though have been criticised by banks and consumer groups for misleading consumers about their suitability and aggressive marketing tactics. In 2007 the Office of Fair Trading ordered a number of debt management companies to change the way they promoted the use of IVAs. The IVA industry has grown quickly on the back of the growing debt mountain faced by people in the UK. And for many IVA providers it has been a very profitable business with some companies earning up to £5,000 per IVA.

The new code which is voluntary, has been agreed following extensive consultation with IVA providers, lenders, consumer representatives and the Insolvency Service. It is claimed the new code will give greater transparency for everyone involved by using standard clauses and a consistent format. The British Bankers Association (BBA) hopes the protocol will restore consumer confidence.

The code should ensure that:

• debtors are asked to detail their income and outgoings in a standardised financial statement
• insolvency practitioners carry out more stringent checks on income and mortgage repayments 
• debtors are encouraged to reach an informal agreement with creditors before being recommended for an IVA
• there will be an agreement as to when debtors are considered to have breached the terms of the IVA
• a lender who rejects an IVA proposal will need to give a specific explanation for the rejection.  

Some concern has been expressed though that the code is only voluntary and that a statutory code should have been introduced.