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Personal insolvency reform needed ‘sooner rather than later’

Personal insolvency reform needed ‘sooner rather than later’

30 August 2023

Debt charities and R3 have welcomed the results of the Government’s consultation on the current personal insolvency framework but say reform is needed as soon as possible to address the cost-of-living crisis. 

The Government this month released the results of its consultation from last year on the personal insolvency framework. The consultation covered perceptions about the underlying purpose of the framework, how funding arrangements should work and current processes and procedures. 

Nicky Fisher, president of R3, said: “We welcome the Government’s decision to launch a consultation into the personal insolvency framework, and their recognition that there are shortcomings in the current regime and areas where it could evolve in order to better meet the needs of those who use and work with it.

“At a time when personal insolvency levels are rising and debt charities are reporting an increasing number of demands for their services and numbers of people in negative budgets, we need clear thinking and progress on this issue sooner rather than later.”

According to figures from the Insolvency Service, 118,865 individuals entered a formal insolvency situation last year, of which 87,967 were IVAs, a record high. 

Vikki Brownridge, CEO at StepChange Debt Charity, said: “It’s vital that insolvency solutions are accessible and provide a safe route out of debt, leading to long-term good outcomes for consumers. The current framework leaves consumers vulnerable to harm from unaffordable fees, a lack of flexibility and aggressive commercial practices. The mis-selling of IVAs is a particular area of concern that needs urgent action.

“We look forward to working closely with the Insolvency Service as it looks to make structural reforms to the personal insolvency landscape. In the context of the cost-of-living crisis, in which people’s financial resilience has been eroded, insolvency must be fit for purpose in providing effective debt relief.”

Jane Tully, director of external affairs and partnerships at the Money Advice Trust, said:"With millions of households already struggling due to the impact of high costs, tackling these barriers, to ensure people are able to access safe routes out of debt, is now more important than ever. We urge the Government to bring in reform as soon as possible.   

“However, action is needed now to help people struggling to access suitable debt options due to fees, especially as the cost of living continues to pile on more pressure.”  

The consultation gathered 64 responses and included comments from debt advisers, creditors, IPs, regulators and academics. The Insolvency Service said: “The Government acknowledges that the information available indicates that there are shortcomings in how the current regime operates and that it needs reform to reflect changes in the way society operates and attitudes towards personal financial difficulty during the last 40 years. 

“The strong message from stakeholders is that some individuals are not able to deal with their debt by easily accessing and entering an appropriate solution because barriers to entry are too high, there are shortfalls in the current procedures and there are inconsistencies in the treatment of individuals and the quality of service provided, across the framework.  The impact of this is that the framework is not as efficient and effective as it could be in supporting those in financial distress.”

The Government has said that it aims to publish further proposals for reform in early 2024. 

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