Finances behaving badly?

Posted in 'Dealing with Debt' by Richard Catlin

19 August 2009

Actor Neil Morrissey is the latest celebrity to find his personal finances splashed all over the press after he decided to enter into an Individual Voluntary Arrangement (IVA) following the collapse of a company he invested heavily in.

The actor, best known for his role in the 1990's sitcom Men Behaving Badly, has spoken openly about his decision to opt for an IVA rather than take the often easier route of filing for bankruptcy - becoming one of almost 23,000 people to do so in the first 6 months of this year alone.

Mr Morrissey cites wanting to make a conscious effort to repay his creditors as the reason for deciding to deal with his financial problems through the IVA, which will see him give up all that he earns aside from living expenses until the total is cleared. Opting for an IVA does also mean though that any assets, such as his home and car, aren't included as a formal part of the agreement, unless creditors insist, which is unlikely. In a bankruptcy his share in these assets would automatically have been forfeited.

That's not to say that he's completely safe from losing his home. Lenders can always petition for his bankruptcy in the event that the agreed IVA repayments aren't made. Another little known caveat within an IVA allows creditors to insist that the agreement is secured through a charge on his property. If the client fails to stick to the terms of the agreement, it's possible for the creditor to force the sale of the property and take their debt from the proceeds.

As Britain's debt problems have got worse over the past 5 years, the number of debt management companies seeking to take advantage of the situation has increased dramatically.

Driven by high profile advertising featuring claims such as "the easy way to wipe 75% off your debts", the total number of insolvencies jumped from around 67,500 in 2005 to over 107,000 the following year, with IVAs doubling in number. An aggressive move by lenders to tighten the criteria they were prepared to accept, (now not less than 40% of all debt must be proposed to be repaid), combined with a crackdown by both the Office of Fair Trading (OFT) and Advertising Standards Agency (ASA) on misleading claims, has subsequently seen the number of insolvencies level out.

2009 is set to see a further increase, although it is bankruptcies rather than IVAs that are predicted to be significantly on the up. Take-up of the newly introduced Debt Relief Orders (which came on stream in April as a cheaper alternative to bankruptcy for people with few or no assets and debts of less than £15,000) have been slower than expected - with less than 2000 issued in the three months to the end of June. Orders have taken longer than expected to process, leading to a backlog, and the decision to include any pension fund as an asset has also seen many people not qualify against what are already fairly tight criteria.

Although you can be discharged from bankruptcy or a Debt Relief Order in as little as 12 months, rather than the 3-5 years it takes to complete an IVA, all three will remain on an individual's credit file for 6 years, making it very difficult or impossible to get new credit facilities in that period.

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