I just don’t know what has happened to the banks since I returned to the office following the Christmas break - but the season of goodwill to all men is definately over.  Having been heavily involved in the IVA marketplace since the late 1990’s, I really thought a certain custom and practice had been established between Insolvency Practitioners and creditors as to reasonable and allowable expenditure, but to be told today by a major voting representative, who will remain nameless (but who are also a major proposer of IVA’s) that the expenditure quoted in a proposal I had put forward was “ridiculous”, I feel the need to put fingers to keyboard in protest!

Personally, I have never been a fan of standard expenditure allowances.  Not everybody fits the same picture, and little allowance can therefore be made for individual circumstances.  In my practice we spend a lot of time with clients exploring what they actually spend, and understanding the reasons for that expenditure, and of course we verify the amounts by examining contracts, bills and bank statements.  Of course this does not give debtors carte blanche to provide for a three week cruise holiday or shopping at Prada, but it seems to me that institutions who are freely lending money, with limited credit checking or further investigation into their customers’ financial circumstances, are becoming increasingly harsh in their view of what expenditure should be allowable when things go wrong.  Last week I had one creditor’s representative telling me that £20 per week was the maximum allowed for a single person to feed and clothe themselves.  When I asked this person if he felt that he could manage on such a frugal budget he admitted honestly that he could not, but then still toed the party line with regard to his firm’s expenditure matrix.

The latest benchmark to hit the insolvency marketplace is the British Bankers Association’s Common Financial Statement currently being relied upon by a number of major banks.  The research into this document was carried out in the early 2000s, and was finalised in 2005.  In principal I have no problem in the BBA, on behalf of its members setting benchmarks, but these must be realistic and be reviewed in line with inflation and other factors such as the recent increases we are experiencing in car fuel and domestic power.  Even the voting representatives who have been instructed by their clients to use this matrix admit that the allowances are often unreasonable. I urge the BBA to consult with their clients and Insolvency Practitioners alike - which has already started within the newly formed Debt Resolution Forum to review this statement in order that we can make IVA’s workable in the long-term.

Just this week I have had two clients pull out of very realistic and workable IVA proposals because creditors have demanded unfair increases in contributions which they honestly could not afford.  As my firm does not charge any fees until an IVA is accepted, I have had to write off a substantial amount of time which I will not now be paid for, and my clients are now in the process of petitioning for bankruptcy which will result in a zero return not only for the rejecting creditor but all of the others who had faithfully supported the proposals.  Is this really what the banks want to see?  I fear there will be many more instances of this over forthcoming months and Insolvency Practitioners will refuse to take cases on leaving us with the only options of bankruptcy or Debt Management.  At a time when the Government are really trying to support the IVA as a more favourable option to an unregulated DMP, we seem to be taking one step forward and two backward.  In addition, we will see IVA clients accepting unfair increases in contributions simply because they want to get away from mounting debt pressure, to later fail because they cannot afford the repayments.  Note that the Common Financial Statement allows nothing for contingencies, and my predictions are likely to be ever accurate.

The cynic in me wonders if these practices actually serve to encourage proper and accurate reporting by Insolvency Practitioners within proposal documents, or whether it encourages abuse and false declarations.  I would like to believe that this is not the case, and I certainly will not change the way I present - after all it is the debtor’s proposal and therefore their right to put forward their financial circumstances as they are.  The next few months will be interesting, and I shall await end of year statistics to see whether there are a substantial number of IVA’s rejected at creditors meetings to be followed by bankruptcy petitions.  If this is the case, the banks will be facing an even bigger write-off, at a time when the IVA was really starting to prove itself as a reliable method of repayment for the insolvent debtor.

Perhaps this has come as a suprise to most people, but not so much to those of us who work in the debt industry.  And my view is it won’t be the last we will see this year.  For may people, the culmination of this coupled with the earlier rate rises may now lead to further cash strain within the family household budget, particularly for home owners. 

If you feel that you are one of the many who are likely to be effected by these increases, you should immediately look at your finances to see whether economies are necessary and possible.  List out all of your income, and deduct your usual household expenses including the mortgage, utility bills, housekeeping and clothing, personal expenditure and regular debt repayments.  Make sure some provision is also made for contingencies such as house and car maintenance, medical expenses, childcare during school holidays etc.  If your budget is tight, or at worst you have more going out than coming in, perhaps rearranging your mortgage to a part-interest only/part repayment may assist in the short term - although this will extend the repayment term accordingly.  Seek specialist advice from a mortgage broker or your lender if necessary.

Beware the taking of secured or consolidation loans.  They may prove to be a temporary quick fix, but the temptation may still be there to use the existing sources of credit again- thus causing what we refer to as the “debt spiral”.  This can cause to more serious difficulties, at which time more specialist advice may be required.  Try and not use additional borrowings to meet ongoing expenses.  If you feel that this is the only option - it isn’t, and at that stage chat to a debt counsellor or insolvency practitioner - it won’t cost you anything and the advice may be invaluable in restructuring your finances.

Today I managed to persuade Northern Rock to accept a dividend of 35p in the £ on an IVA case.  The total debt on the case is circa £60,000 and Northern Rock are owed £18,000.  The original offer was at 30p, but we agreed to compromise at somewhat higher but well below their common lower level of 45p.  This goes to show that with some sensible commercial bargaining most things are possible.

Hi everyone,

My name is Melanie Giles and I have been an IP for approx 20 years. I have a wealth of experience which i hope to bring to the IVA coommunity.

I hope to update this blog with my experiences in the IVA market as an Insolvency Practitioner.