Insolvency practitioners falling short on best advice

The Mail on Sunday reports that, as the number of personal insolvencies rises rapidly in the UK, many people in debt are being advised to take out individual voluntary arrangements (IVAs) or debt management plans (DMPs) that could be more costly than bankruptcy or strict budgeting.

Peter Luff MP, chairman of the backbench Trade and Industry Select Committee, told the newspaper that he “cannot think of any legal, political or practical reason” for insolvency practitioners not to offer the best advice to consumers.

At present, an insolvency practitioner recommending an IVA could earn £4,000 as a starting fee, compared to just £100 from a bankruptcy.

The view that IVAs may be mis-sold is one that is shared by ClearDebt, which also believes debtors should meet a qualified professional in person to assess their situation, a practice favoured by former president of the Insolvency Practitioners Association, Keith Goodman.

“We insist on a face-to-face meeting because we think it is in the best interests of both debtors and creditors” commented ClearDebt chief executive David Mond. “We’ve lost IVAs because the meeting revealed information that showed that an IVA was not necessarily best advice.

“We’ve also had a few debtors who’ve repeatedly not bothered to turn up to meetings: we think that is a good thing for creditors – if someone can’t turn up to a meeting where they get advice on their rights and responsibilities, then just how likely are they to take their IVA seriously in other ways?”

Mr Mond also commented on IVA fees: “The level of fee mentioned in the Mail on Sunday’s article is not untypical – and this means that access to an IVA is often artificially restricted to those who owe upwards of £20,000.

“ClearDebt’s nominees fees start at £750, meaning that we can help people with debts as low as £7,500, though it would be unusual for an IVA to be best advice at that level.”