ClearDebt have been recognised again in the media this week as one of our IVA clients shared her experiences with the a national newspaper.

The IVA success story of April Day was featured in the Daily Mirror newspaper yesterday in an article entitled “If we escaped debt, anyone can” which looked specifically at women in debt.

The article also included quotes from ClearDebt’s Marketing Director Andrew Smith, who also speaks on behalf of the Debt Resolution Forum (DRF).

Andrew commented:

Most people who take out loans are confident they can pay back the money. But they may suffer an economic shock, such as redundancy, splitting from their partner or suffering illness.

You can view the full article on the Daily Mirror website here: If we escaped debt, anyone can. You can also view another real-life IVA story on a guest blog written by one of our clients here: The IVA Journey of “Struggling 63″

Today, Friday 4 February 2011, The Insolvency Service published the last set of insolvency figures (Q4) for 2010.

At first glance, there appears to be little to say, except that personal insolvencies were down a bit between Q4 2010 and Q4 2009 (13.6% down, in fact) but are pretty much the same over the year (just under 1% up – so not worth thinking about, really).

I took a slightly longer  look at the figures though and a couple of things struck me.

Firstly, that we may have reached a tipping point in the structure of personal insolvency in the UK. Second, that the Official Receiver has really upped it’s game when it comes to squeezing money out of bankrupts.

Tipping point?

Since the year dot, bankruptcies have been the most common personal insolvency procedure. Until 2009, they always outnumbered all other personal insolvency procedures.

Not any more. In 2010 Individual Voluntary Arrangements (IVAs) and Debt Relief Orders (DROs), added together, outnumbered bankruptcies for the first time. IVAs  have risen eightfold over the decade and now represent 38% of personal insolvencies (21% in 2001) – so many more people are choosing a procedure that takes considerable personal effort, but which has less drastic consequences, sometimes, than bankruptcy and which represents a real effort to pay what they owe – something creditors are still not doing enough to recognise.

DROs are big news. The DRO is  a flawed bankruptcy lite – for those who can’t afford to go bankrupt. They’ve rocketed away since their introduction two years ago, and there were 25,179 last year. I suspect rising unemployment may have something to do with this – but not as much as there just being a new, simple procedure in place for people who have low income and low debts.

The real change is one that, I think will be welcomed by government – and built on. Bankruptcy is being eroded at the top by a procedure that represents a fair deal between debtor and creditor and at the bottom by one which makes dealing with debt a simpler and  less costly option for those with low income and few assets. Once they sort out the pension issue I think we will see the number of DRO’s rocket away.

As to building on it, well, it seems to me that the government is concerned to ensure that those debtors who can pay, should pay which brings me to…

Income Payments Agreements

Stealthily, things are changing… Income Payments Orders and Income Payments Agreements have risen very significantly in the past few years. More and more people are finding that the one year bankruptcy is accompanied by a (usually) three year order to pay substantial amounts back to their creditors every month.

It used to be thought that the Official Receiver wouldn’t have the time or inclination to do this. Boy were we wrong. One in four bankruptcies now has an IPA attached to it. That’s interesting too – IPAs are voluntary (ok-ish, doubtless the OR or trustee advises you that you’d be wise to agree). IPOs, which have almost died out, are compulsory and require a court order . So, one-in-four bankrupts are agreeing to repay from future income over three years.

Seems to me that a balance is being sought: Creditors should accept that they need to make it possible for consumers to deal with unsustainable debt. And debtors are finding out that they will be asked to do the best they can to repay as much as they can, in a reasonable time period.

I suspect we’ll see further steps in this direction as the BIS/Treasury consultation on credit and debt regulation goes forward.

The Crusader column in The Daily Express recently came to ClearDebt for some advice on how to help a woman who felt she had been unfairly treated by her debt management company.

ClearDebt looked into the case of Elizabeth Bastow who had been paying into her debt plan for five years and still owed more than 50% of her initial debts. Her debt management company had not arranged with her creditors to freeze the interest on her debts and they had retained around £2,000 – £3,000 as their fee. Andrew Smith, Marketing Director at ClearDebt noted the following about her case:

If an IVA had been do-able, by August 2007 we have calculated Ms Bastow would have paid £12,000 and the remaining debt written off. As it was she still owed more than £11,000

Elizabeth is following up a formal complaint against her debt management company and in the meantime has taken up ClearDebt’s offer to help her with her debt problems by waiving their administration fee. She commented

I’m so grateful, it’s just wonderful to have people who care

You can read more about Elizabeth’s story on the Daily Express website here: The Debt Plan That Didn’t Pay Off and read more comments from the people we’ve helped on our client testimonials page: What people say about ClearDebt.

If you are in need of some debt advice get in touch by calling 0800 019 2095 or by taking the ClearDebt online debt analyser.

Things you should consider before entering into an individual voluntary arrangement.

As a company who aims to be ethical and honest with our debt advice, we want to make sure you’re clear on all the positive and negative aspects to the debt solutions we offer. Here are the advantages and disadvanatges of an individual voluntary arrangement, also known as an IVA:

IVA Advantages

1. You could become debt free within 5 years, or even less if your circumstances allow for a lump sum IVA.
2. An IVA can help you avoid bankruptcy proceedings. View our comparison of debt solutions table to see in more detail why an IVA could be a better option for you.
3. Once your IVA is in place, no more interest can be added by your creditors.
4. Instead of making individual payments each month to different creditors, you will only have to make one fixed affordable monthly payment which will be distributed to your creditors.
5. Providing you meet your monthly IVA payment, creditors cannot take further legal action against you.

IVA Disadvantages

1. Entering into an IVA will have a negative effect on your credit rating throughout the duration of your IVA and for an extra year after completion. It’s worth remembering that if you’re in debt an are struggling to meet your repayments then your credit rating may already be adversely affected anyway.
2. If your IVA fails, this can result in your creditors petitioning for your bankruptcy.
3. Although an IVA can allow you to keep your home, if you have equity in your property you will usually need to remortgage at some point during the IVA to repay some of your debt. This normally happens during the final year of the IVA.
4. You may have to sell any high value assets you own, or downsize. For example you may have to exchange a luxury car for a more reasonable vehicle.
5. Any additional income you earn, such as a one-off bonus, will be taken into account and you could be expected to pay a large proportion of this into your IVA, although you will never have to pay more than you owe.

If you think an IVA could help you with your debt problems, take our online debt analyser now to find out more about what’s right for your individual finances.

Comparison site Lovemoney.com recently posted an article on new proposed changes for the conditions put in place for bankrupts regarding disposable income.

Income Payment Orders and Income Payment Agreements

Bankrupts who are making payments towards their bankruptcy debts, must continue to make them, even after their discharge. These payments are known as Income Payment Orders or Income Payment Agreements. They last for three years. Previously bankrupts would be expected to pay around 50% – 70% of any disposable income they earned to their creditors as part of Income Payment Orders and Income Payment Agreements.

New Guidelines for disposable income

Lovemoney reported that new guidelines put in place by the Insolvency Service would mean that bankrupts would not get to keep any of their disposable income at all – not even an allowance for emergencies. They argued that if this guidance is put into practice, bankrupts would essentially be discouraged from working or bettering themselves, for example by going for a promotion, because they would not benefit from that extra income. We’ll try to keep an eye on this, because, in practice, in the past, the Official Receiver has not been unreasonable.

IVA as an alternative to bankruptcy

This news further adds to the advantages of an IVA as a debt solution for some people instead of bankruptcy. Unlike Bankruptcy Income Payment Agreements, IVAs contain a built in allowance for emergencies. Both IVAs and IPOs in bankruptcy  include windfall clauses which cover what would happen should the debtor come into some additional money, for example an inheritance or bonus. Typically the debtor would be expected to pay all of any windfall, up to the total amount owed, and up to 50% of any salary rises or bonuses into their IVA. The government’s guideline (see link above) is not so clear when it comes to an IPO.

It’s worth having a read of our full list of IVA advantages over bankruptcy, and if you need help with your debt problems and really don’t know what to do, it’s worth completing our online contact form and one of our trained advisors will be in touch to discuss what debt solutions are suitable for you. Complete our online contact form now.