| Bad Debt Amnesty |
|
The average person in the UK is now £33000 in debt, yet due to an ongoing row between debt management companies and the banks, has found it difficult to come to arrangements and consequently seen bankruptcy as the only alternative. The growth in the use of Individual Voluntary Arrangements (IVAs) in the last few years came to a sudden halt in 2007 when the banks and other credit companies started refusing them en masse. However, the row has been resolved and more people should see their IVA agreements being accepted and ,therefore, avoiding the bankruptcy route. IVAs allow people in debt to schedule fixed monthly payments over a five year period in return for paying, sometimes substantially, less than the debt that is actually owed. IVAs are sometimes called ‘bankruptcy lite’. The new agreement is set to be published next Friday by the Insolvency Service and is called the Straightforward Consumer Agreement. Several issues are still to be clarified including the extent to which someone may have to remortgage their home at the end of the five year period, to reflect its increased value. In the event of being unable to remortgage then a one year extension of the IVA is likely without the debtor losing their home. Background: The row between the banks and IVA providers centred around the fees the banks pay to the providers in return for helping their debtors pay off the debt. The banks were incensed when the IVA providers were suggesting that as little as 10% of the debt would have to be repaid. These claims were repeated in advertising claims. The banks responded by dropping the fess they pay claiming that when a person drops out of an IVA agreement early, the bank still has to pay the full fee. However, mass rejections of IVAs in 2007 by HSBC, MBNA and Black Horse and a blanket rejection policy by Northern Rock led many IVA providers to believe the banks were doing it in response to the developing global credit squeeze. IVAs require the majority creditor to agree to the plan. Mass rejections were, so the IVA providers claimed, shutting the door on a viable debt solution by making it not worthwhile for the providers to offer this type of service. Solution: Thankfully a solution has now been agreed between the British Bankers Association, the Insolvency Service and a group of IVA providers. The agreement has drawn up guidelines on what type of customer should be recommended for an IVA and standardised the documentation to be used. The result should be more people being accepted for an IVA and for the level of fees to be agreed more easily between the banks and IVA provider. |
| < Prev | Next > |
|---|