Debt and Insolvency: The Full Picture

The Association of Business Recovery Professionals (also known as "R3" - Rescue, Recovery and Renewal) represents Insolvency Practitioners ("IP's") to the general public and more specifically to politicians and journalists. R3's mandate (amongst other things) is to try and educate people not connected with the insolvency profession about what we do.

As part of this, R3 will periodically issue briefing papers on insolvency related subjects and has just issued three very interesting ones!

The first is "Debt and Insolvency: The Full Picture". The full paper can be found on our website here (Useful Stuff/Personal/R3 - Debt Insolvency Paper - March 2010) and in brief, it looks at the various methods of dealing with personal insolvency.

One of the main points that has come from the paper is that the vast majority of people who go through an "informal" solution, such as a debt management plan ("DMP"), feel that they were not talked through all the alternative options, including the formal (bankruptcy and IVA) procedures. In my experience, most individuals in a debt management plan have simply responded to a generic advert in the local paper or on TV along the lines of "get rid of your debts" and are sold a 'product' that doesn't necessarily meet their needs.

IP's are heavily regulated - DMP firms are not regulated, other than having to have a Consumer Credit Licence, and some of the DMP firms I have come across don't even have that! Most DMP advisors also do not have to have any qualifications and usually have little or no experience in giving insolvency advice - they simply concentrate on the DMP product they are selling. Most DMP firms (not all, I hasten to add) are also simply there to get a fee and move on to the next customer, rather than looking after a client - there is a definite difference between "customer" and "client". Can you tell I'm not a great fan of DMP's?

Interestingly, the paper also concludes that the vast majority of people who go through a formal insolvency (e.g. bankruptcy or IVA) believe they will not need help with their finances in the future. This is, in my opinion, because an IP is involved in the formal procedures and the IP will give full, rounded advice on all procedures, as they have the experience and in particular they are REQUIRED to do so by their Regulators.

Over the next few weeks I will issue a blog post on the other two papers:

"Struggling with debt without help"
"Rises in the base interest rate - what effects will it have?"

Please feel free to comment!