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Insolvency Figures ‘are Far Worse Than They Look’

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Insolvency figures ‘are far worse than they look’

PERSONAL debt figures are looking grimmer than ever, with newly-released survey results revealing that the total number of insolvent individuals in Britain is now approaching the million mark.

Jim James, North-East regional chairman of insolvency trade body R3, is warning those struggling with debt to be careful who they turn to for help.

The latest estimate from the YouGov Debt Tracker survey, carried out in consultation with R3, revealed that there are 700,000 Britons who are left off the official insolvency statistics, even though they are technically insolvent.

This is because they are in Debt Management Plans (DMPs), which are an unofficial but formalised agreements with creditors.

The number of these plans identified by the survey jumped 17 per cent between August 2008 and February 2009.

The 700,000 DMPs dwarf the combined total of 190,000 people in either an Individual Voluntary Arrangement (IVA) or who were declared bankrupt in 2008.

Mr James, also head of the Insolvency and Corporate Recovery Unit at Newcastlebased law firm Ward Hadaway, said: “This survey shows that the official statistics are just the tip of the iceberg of those who are in severe financial difficulty, and it is particularly worrying in light of increased predatory behavior from unregulated ‘debt solution’ companies, and even criminal loan sharks.

“With reports that the National Debtline is receiving twice as many phone calls as they can deal with per day, it is clear that the debt charity sector is over-run, but it is absolutely crucial that people are discerning about whom they seek help from to ensure that they do not have ulterior motives. Knowing what your options are, and making an informed decision based on this knowledge is absolutely crucial.â€

Mr James believes that the popularity of debt management plans (DMPs) does not necessarily make them the best option for everyone facing financial problems.

“A DMP is a structured way for those with manageable levels of debt to sort out their finances, but these plans may not always be the best solution for those in financial difficulty as unlike statutory procedures there is no debt forgiveness, no freeze on interest nor are DMPs binding on either creditor or debtor,†he said.

“Moreover, cases have been reported where individuals have been ‘strong armed’ into a DMP by creditors, even though it was not necessarily right for them. This could be because DMPs can be used as a smokescreen to hide ‘subprime’ debts in lenders balance sheets.

“There is also the risk that DMPs can turn into ‘debt slavery’ with the survey revealing that 18 per cent of those in a DMP stated the DMP was due to last longer than ten years, and another 27 per cent who didn’t even know how long the plan was due to last. The survey also showed that 26 per cent of those in a DMP had the terms of the plan changed, with 64 per cent of these people seeing an increase in the amount of their monthly repayments.

“IVAs and Bankruptcy were the only two formal insolvency procedures until this April, when Debt Relief Orders (DROs) were introduced for people with unsecured debts under £15,000 – though no statistics for DROs have been released yet, they are a procedure very specifically aimed at those with a very low income, and little or no assets, and will not make a significant reduction of the number of people in DMPs.

“If people are worried about their finances, it’s more important than ever not to delay seeking professional advice, and to make sure they get it from the right people – trusted debt charities and licensed insolvency practitioners are both regulated, and able to give you information on all your options without bias.â€

Most of us wear the wealth of the nation on our sleeves, backed by an excess of cheap credit.

The house of cards is collapsing folks. Tough times ahead.

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