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Some UK Debt Solutions Proving Harder To Get
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Recent developments in the debt solutions sector
means that borrowers in trouble are finding it harder to escape their
debt burden. Over the past few months, as the credit squeeze bites even
further, banks have allegedly hardened their approach to agreeing to
Individual Voluntary Agreements (IVAs). Although one of the most
used ways of discharging debt, the amount of IVAs agreed has been
reducing steadily even though the figures show that more people are
getting into financial difficulties, and that looks set to rise as even
more borrowers get over-extended. The IVA is the last resort before
going bankrupt but the Debt Resolution Forum (DRF) claims that banks
and credit card companies are setting out to do as much as possible to
block IVAs, unless they get a combination of higher payments from their
borrowers and lower fees charged by debt solutions companies and IVA
providers. An IVA cannot be granted unless 75% of the creditors
agree to it, but because banks have been recovering as little as 10% of
their debt through IVAs, many have simply been refusing to sanction the
agreements. But, the banks are quick to point out that they are not
deliberately frustrating the IVA process. Mark Hover, head of The
Insolvency Exchange (TIX), a group that represents HBOS, HSBC, RBS,
Direct Line and Marks and Spencer, said: "We want more acceptable
returns to creditors. Plus, IVA providers are still charging a
'specialist' fee for what is now a 'commoditised' product. As the
average IVA fee is around £7,500 we think that should fall to nearer
£5,000 reflecting the lower administration charges actually incurred on
most agreed IVAs." Hover counters the DRF claim that banks have
been rejecting more IVAs stating that acceptance rates are staying
steady at around 80%. But, in direct contrast to the view put forward
by the DRF, TIX believes that more over-stretched borrowers would take
out IVAs if the fees were lower. However, it's the pressure to reduce
fees that is forcing debt solutions companies to reduce their advertising, and they in turn are finding that their conversion rates are falling. As
a consequence, as well as watching their own incomes dwindle, many
insolvency practitioners are concerned that effective debt management
advice is becoming harder to get for over-stretched borrowers, and are
urging the banks to reconsider their hard-line approach to accepting
IVAs. With over 250,000 people contacting debt charity Consumer
Credit Counselling Services (CCCS) since the start of the year, up
almost 25% on the same period last year, it is becoming increasingly
clear that many people are struggling under the burden of unmanageable
debt. The banks and the insolvency industry need to settle their
differences in order to help those who need it most. Article Source: Adam Singleton
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