Insolvency: Thousands of Britons could cut debt if advice changes | Bankruptcy and IVAs

tBritons’ homes could be written off or have monthly repayments cut after the government told insolvency advisers to consider the impact of the cost of living crisis on people’s ability to keep up with repayments.

The Insolvency Service has issued new guidelines for overseeing Individual Voluntary Arrangements (IVAs), repayment plans agreed with creditors that allow for problematic debts to be paid off over an agreed period of time.

The opinion notes that existing agreements may have been drafted before the individual had knowledge of the “current financial environment, rising inflation and increases in energy and other household expenditures”. This pressure “may affect a consumer’s ability to pay monthly contributions … at the same level as previously agreed,” it adds.

The move comes at a time when more people are struggling with rising food, fuel and energy bills. According to the Office for National Statistics, there were 81,199 IVAs registered in England and Wales in 2021 – the highest since registration began in 1990, while 23,997 IVAs were registered in the first three months of 2022. Separate government figures show that 6,300 to 7,800 IVAs are registered one month in the past year.

Sara Williams, a former debt counselor and the founder of the website Debt Camel, says anyone with problems should talk to their IVA office now: “There’s no need to wait for your next annual review.”

The Insolvency Service says advisers should consider requests from people seeking to reduce their monthly payments, with creditors generally willing to accept discounts of up to 50% of current contributions, down to a minimum of £75. If monthly payments fall below that level, the trustee should consider terminating the agreement early based on the payments already made in the plan.

Decisions are made on a case-by-case basis and all creditors must agree to the proposal. The trustee should also consider whether an alternative method, such as debt restructuring or bankruptcy, would be more appropriate.

StepChange says the changes mean that “there is now, for the first time, a real chance that their creditors will agree to early completion of the IVA based on monies paid to date”. Peter Wordsworth, head of insolvency services at the debt charity, added: “This is a very welcome and pragmatic development in light of the cost of living crisis.

Creditors are now more open to early completion of the IVA, where this is the most pragmatic option for people whose IVA would otherwise fail, and where creditors have little chance of getting more money back through the customer. to demand that he choose an alternative debt solution, for example a debt counseling assignment.”

Coins and notes
The government has instructed insolvency firms to consider the cost of living impact of the crisis on people’s ability to keep up with repayments. Photo: Dominic Lipinski/PAC

An IVA is an arrangement to pay all or part of your debts through regular payments to a trustee, who then divides the money among the creditors, who divides the money among the creditors. It can start when 75% of creditors agree, and even applies to those who disagree.

The new advice aims to prevent an IVA from collapsing, which can have major consequences for the individual. If this happens, the person could be held liable to pay the full balance of their debt and cover IVA costs and fees, leaving them vulnerable to foreclosure by creditors.

“If you cannot afford these reduced payments, or if your IVA will last more than seven years, or if you now qualify for another option, such as a debt relief warrant, practitioners should consider offering an early retirement plan based on based on what you’ve already paid is a suitable option,” said Graham O’Malley, senior debt expert at Citizens Advice.

“Whether early settlement is an option for you depends on what your practitioner says, and ultimately all organizations you owe money to must agree to this formal change to your agreement.”

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