Article written in The Times today by Christine Seib
Almost 600,000 people will be unable to refinance their debts this year after finding their usual lines of credit cut off, forcing them to go bust or sign expensive “bankruptcy-lite” agreements.
About one million Britons are struggling with £25 billion of unsecured borrowings that they cannot repay – “problem debt” averaging £25,000 each - according to a report by TDX Group, which provides detailed debt-collection information to banks. TDX said that last year 400,000 people remortgaged or applied for new credit cards or personal loans to pay off old loans. A further 300,000 people took more dramatic options to escape their debts, such as bankruptcy, debt management plans or individual voluntary agreements (IVAs). IVAs are called bankruptcy-lite because they involve the creditor, usually a bank, accepting a reduced sum to be paid off over a set period. Debt management plans are a higher-risk, unregulated form of IVA.
IVA companies typically charge between £5,000 and £9,000 to organ-ise the agreement with the bank, with their fees taken from the debtor’s repayments.
Mark Onyett, the chief executive of TDX, said that 2008 was likely to be a boom year for IVAs because the squeeze in the global credit market meant that lenders would turn away customers who previously had borrowed to pay off old debts. He said that as the number of problem debts ballooned, up to 600,000 people could be forced to become bankrupt or sign up to an IVA. “For the vast majority of people this year, refinancing and remortgaging won’t be available as a solution,” he said. “Their choice will be narrowed to bankruptcy, a debt-management plan or an IVA. You could see a doubling of IVAs.”
About 45 per cent of people who enter into an IVA never complete their repayments, which means that the thousands of pounds it costs to set up the plan is tacked on to their existing debt. About 60 per cent of Britain’s £25 billion problem debt is on credit cards
