Artificially *increased* living expenses to get an Individual Voluntary Arrangement (IVA)?
This is a new one on me. I talked to someone last week – let’s call them Sam – who ended up in an IVA after the lead generator coached them to artificially increase their household expenses in order to give the impression that they had less money available to pay off their debts.
Why? Because if they hadn’t, the lead generator would have had to admit that Sam did not need an IVA at all – they could just pay their debt back over a reasonable period of time. Goodbye referral fee, sayonara £1200??
Because Sam wasn’t actually insolvent, just struggling after Covid lockdowns had badly impacted their ability to earn income. Which in turn led to a deterioration in their mental health and so they fell behind and down into a deep not-dealing-with-stuff depression.
But how else would the lead generator get its money and the IVA company get its £3500+ in fees? Certainly not by giving Sam the correct advice that an IVA wasn’t for them and they should seek independent debt advice. God forbid we don’t line our pockets in our own best interests, hey?
So Sam ended up in a 5 year IVA with the creditors getting 20p in the pound back. As opposed to the 100p if they had negotiated with Sam direct. It makes no sense – unless you consider the fact that 2 of the creditors are well known debt-purchasing profiteers (names begin with ‘L’) and if they only paid 10p in the pound for the debt in the first place then 20p is still 100% profit.
And what of the lone creditor owed the most, with the biggest vote share who really should have shut this thing down? Well that would be a Council, wouldn’t it? And they must also take some blame. They did not vote. They would not negotiate with Sam about Council Tax arrears because ‘the account is with bailiffs’ and it was that debt – and the bailiff threats - that drove Sam into the arms of a wholly unsuitable and inappropriate insolvency solution they didn’t need.
So the Council too are lined up to get 20% of the arrears paid. They could have had 100% if only they’d been willing to talk and listen to Sam in the first place.
What an even murkier business IVAs are than even I had given them credit for! I hadn’t seen it from this angle before – it’s rare that I see clients who can afford to pay their debts. Normally, the clients I see have been told to reduce their household expenditure in order to make it look like they have more disposable income available than they really have – to make them ineligible for a Debt Relief Order and oh so eligible for an IVA instead.
Once again, this highlights the danger of the misleading promoted adverts on Google and social media, where those only interested in making a fast profit purport to call themselves debt advisers. They are not.
They don’t advise about section 13a applications for Council Tax (which could also have helped Sam out), they don’t advise about Breathing Space, or Administration Orders – another possibility for Sam – and they sure as hell don’t mention Debt Relief Orders (it’s possible Sam would have been eligible for this option when the lockdowns began and earnings dried up).
What they do frequently mention is bankruptcy – and they very often lay out a comparison of the fees in bankruptcy against those paid in an IVA. But again, this is misleading tripe and absolutely meaningless in terms of which option is better for the debtor. I mean, it’s dressed up as an advantage because the creditors apparently get more money in an IVA – who cares?! I’m a debt adviser, not a creditor sympathiser.
Sam’s going to terminate the IVA now that their mental health is much improved and their finances have stabilised. The worrying takeaway for me is that Sam had no idea that independent debt advice was available freely. People who have little experience of the social welfare advice system don’t expect it to be something you can just access for free. How many more people like Sam are getting locked into IVAs because their first search on the internet for help led them to the greedy lead generators?
These adverts need banning. They cause so much harm. Why the Financial Conduct Authority, the Advertising Standards Authority and the Insolvency Service allow this to continue is beyond me. There needs to be serious consequences for any firm paying these ‘packagers’, to properly deter them from sourcing ‘leads’ this way. It’s deeply unethical, and entirely wrong that these outfits are allowed to dress up their bounty-hunting as debt advice.
