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Yorkshire insolvency expert warns people struggling financially 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 currently 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 unofficial but formalised agreements with creditors. The number these plans identified by the survey jumped 17% from August 2008 to 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.
"This shows that the official statistics are just the tip of the iceberg of those who are in severe financial difficulty. This 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 who they seek help from to ensure that they do not have ulterior motives.
"It's about knowing all your options, and making an informed decision based on this," Andy Wood explains. "A DMP is a structured way for those with manageable levels of debt to sort out their finances. However, 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. 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 'sub-prime' debts in lenders balance sheets.
"There is also the risk that DMPs can turn into 'debt slavery' with the survey revealing that 18% of those in a DMP stated the DMP was due to last longer than ten years, and another 27% who didn't even know how long the plan was due to last. The survey also showed that 26% of those in a DMP had the terms of the plan changed, with 64% of these people seeing an increase in the amount of their monthly repayments.
IVAs and Bankruptcy were the two formal insolvency procedures until 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 you are worried about your finances it's more important than ever not to delay seeking professional advice, and to make sure you get it from the right people. Trusted debt charities, and licensed insolvency practitioners are regulated and will be able to give you information on all your options without bias." concludes Andy Wood.
