There has been an increase in the number of bankruptcies in the UK. According to figures from the Ministry of Justice the total number of bankruptcy petitions was up to a new twelve-monthly record of 54,536 in the year to June. However, high street lenders have now been accused of preventing thousands of families in financial straits from accessing debt settlements which pull up short of bankruptcy, which has led to an increase in bankruptcy numbers.
The Debt Resolution Forum (DRF) represents 28 debt firms, such as Accuma and ClearDebt. The Forum said that lenders are putting artificial barriers in the way of borrowers looking to use Involuntary Voluntary Agreements (IVAs) to get themselves out of debt, thus avoiding bankruptcy. The Insolvency Exchange, of which lenders such as HBOS is a member, has, according to the Forum, put up fees which could makes IVAs unworkable, and thus put many advisers out of business. The Forum is considering a legal challenge.
Chris Holmes, chairman of the DRF, thought that an explosion in bankruptcies would be a likely result if no new deal was reached.
The Insolvency Service is part of the Department for Business and Enterprise and in a letter to industry participants it said it was concerned about the fees overhaul, and creditors were voting against IVAs by putting the fees above a certain level.
An unwanted side effect may be that people trying to avoid bankruptcy may be forced into it, but creditors could end up with less than via an IVA.
On their side, the banks have criticised IVA providers for selling ‘bankruptcy lite’ settlements as a comparatively pain-free method of worming their way out of obligations. An HBOS spokesman said: ‘IVAs have been an established feature in the UK for many years. They are part of the banking landscape and that’s not going to change. We believe the market is maturing and we are now entering a phase where the right fee levels are being put in place.’
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