WITH Britain’s personal debt mountain topping £1.3 trillion, it’s hardly surprising that some of the fastest-growing companies in the financial sector in recent years have specialised in advising people who are deep in the red. They have flourished since the creation of the Individual Voluntary Arrangement (IVA) in 1986, which was intended to help debtors get on top of debts and to give creditors at least a small part of their money back. At that point, IVAs seemed a lifeline for failed entrepreneurs at the high tide of Thatcherism. After the spending spree we embarked upon in the 1990s, they became more a licence for big spenders. As debts mounted, the total of IVAs issued – to ensure debtors are not formally bankrupted and put at risk of losing a home or job – soared into the strato-sphere. The total of IVAs rose from 5,000 in 2002 to 40,000-plus in 2006. With hindsight, expansion at this rapid rate was probably bad news for everybody. Last year, publicly-quoted debt advice companies were taking on around 1,800 clients per month. Some suggested in advertising that clients could use IVAs to repay little more than 10% of their original debts. High street banks, forced to write off huge chunks of the outstanding debt when they accept an IVA, began to fear that this easy acceptance of debt – and an agreement to reduce it by making monthly repayments through an IVA for several years – posed a dire threat to profits. Accountants KPMG calculate that creditors could write off £1.4bn a year if IVAs were issued at 2006 levels. Perhaps the writing was on the wall when Adam Applegarth, the well-regarded boss of Northern Rock, warned that IVAs were “a horrible area”, and probably not suitable for nine out of 10 consumers who took them without realising how badly their credit rating would suffer. Other lenders clearly shared his view – and when the debt specialist companies began to confirm in late January that their workload was dropping fast, these firms saw their shares go into a tailspin. | 
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