Probitas - Professional Debt Solutions

The Association of Business Recovery Professionals has just published a personal debt snapshot. Around 40% of adults are worried about their current level of liabilities. Of these individuals, their income generally runs out by the 20th day after payday, the majority of individuals blaming credit card repayments, followed closely by non-essential payments such as going out, rather surprisingly!

With the market for debt solutions having increased substantially over the last 10 years, it looks increasingly likely that the market will continue growing. Certainly, with the increase in VAT in January 2011, the anticipated cuts in public spending, the increases in interest rates and with Christmas just around the corner, things certainly do look on the bleak side.

A question I have often pondered is the role an insolvency practitioner has when advising individuals.

As an insolvency practitioner, I am obliged to advise individuals on the range of options that may be suitable for their particular circumstances, bankruptcy, IVA, Debt Relief Order, Debt Management Plan, informal arrangement or re-finance.

Do I have a moral duty to ensure that people who can repay their debts, maybe over 10, 15 years or longer, in a debt management plan should do so?

Or, do I simply advise of the pros and cons of each procedure and let the individual make their own decision? In the vast majority of cases, I suspect that individuals would go for the ‘cheapest’ option.

Should insolvency practitioners take it on themselves to educate, to a certain degree, individuals as to finances or should people be educated from an early age?

The number of individuals entering into formal insolvency proceedings reduced slightly compared with the third quarter of 2009, a fall of 3.7% according to figures released by the Insolvency Service.

The number of individuals entering into formal insolvency proceedings reduced slightly compared with the third quarter of 2009, a fall of 3.7% according to figures recently released by the Insolvency Service.

However, there has been a vast swing in the type of insolvencies. The number of people entering into Individual Voluntary Arrangements increased by 4.6%. The number of Bankruptcy Orders being made reduced by 24.2% however - the number of Debt Relief Orders being made increased by 56.9%.

Debt Relief Orders are a type of mini bankruptcy and are only available to individuals with assets of less than £1,300 (car of less than £1,000 and £300 of other assets), disposable income of less than £50 per month and unsecured liabilities of less than £15,000.

So do these statistics support the new procedure - or are individuals obtaining Debt Relief Orders when they do not qualify? The majority of individuals I speak to do not qualify for this procedure, mainly because of the extent of their unsecured liabilities.

What are your views?