Vanessa Smith opened her monthly credit card statement and burst into tears.

After six years of mounting debt, the 26-year-old teacher discovered that she owed £45,000 to four different banks — and could not pay it back. “I realised I couldn’t do it,” she said. “There was no more money, all my credit cards were full, along with my loan and overdraft. My wages would come in and two days later I was up to my overdraft limit again.”

Ms Smith is one of tens of thousands of Britons writing off their debts with banks with the use of an individual voluntary agreement.

Her story is increasingly a common one. Despite starting college with £4,000 in savings, the money was soon spent on fees and halls. Faced with the pressure of her degree, Ms Smith (her name has been changed at her request) became depressed. “I was paying the bills every month on my credit card, using the credit card to pay my expenses. It was a vicious cycle,” she said.

And the banks were no help. she says. “HSBC were really awful with me, I tried to talk to them three or four times and they’d say someone would call me back. When they didn’t, I would call them and they would tell me they had never heard about it. When they found out I had gone to see Debt Free Direct [an IVA provider], they froze my accounts.”

Ms Smith sought help in July last year through Debt Free Direct, which is one of the UK’s largest personal insolvency services, after contacting the Consumer Credit Counselling Service.

Christopher Close, a 51-year-old former merchant navy worker, believes that he might have been able to avoid an IVA had the banks been “reasonable”. Mr Close, who owed £23,000 on credit cards from Barclays, Capital One and Morgan Stanley, said his problems began when he lost his job five years ago. “I had my credit card insurance but I didn’t read the small print because if you lose your job, you lose the insurance,” he said.

As his health deteriorated, Mr Close sought out Thomas Charles, the debt consultants, who put him in contact with RMT, the Newcastle-based personal insolvency service. “They [initially] asked me to go bankrupt as I had no assets by then, the house was gone, but I refused that because I thought — they are my debts, I want to pay something back. I went in and had an interview, and in an hour everything was done and dusted. Last July I got the IVA.”

Last year about 45,000 people opted for IVAS — dubbed “bankruptcy lite” — double the previous year’s level.

The high-street banks wrote off about £1.4 billion as a result of IVAs last year. They have been concerned that IVAs are irresponsibly marketed by insolvency companies, which down-play the drawbacks and wrongly claim that debtors can walk away from as much as 90 per cent of their debts. In fact, people taking out IVAs are rarely forgiven more than 70 per cent. IVAs are suitable only for people with very substantial debts, usually £30,000 or more.

The Office of Fair Trading last month censured 17 IVA firms for misleading advertising. The IVA industry and the banks are attempting to agree a code of practice.

IVAs are pacts between banks and borrowers in which the borrower agrees to a reduced schedule of repayments over five years. IVA firms typically charge £3,000 plus £900-1000 a year, taken out of the debt repayment, leaving the banks with sometimes only 10 or 20 pence in the pound. Some banks have become loath to agree IVAs.

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