Tea Leaves Need to Be Read
Sometimes looking at the latest release of figures makes it tough to see the bigger picture. What did figures do last month, last quarter or the year before and what do they tell us?
The latest round of figures from the Insolvency Service in the UK regarding bankruptcy filings and Individual Voluntary Arrangements (IVA) is surprising. While debt management industry insiders were anticipating a large increase in bankruptcy filings as a result of the lid being tightly held on IVA repayment offer acceptance by creditors, that didn't happen.
Instead, IVA figures continue to drop and be excessively controlled and moderated by unfair creditor policies and rules which bar some debtors from seeking certain types of assistance from licensed Insolvency Practitioners. In a perfectly reactionary market you would expect to see a direct correlation between the performance of bankruptcy and IVA filings. In fact a correlation can be seen in the 2006 numbers as bankruptcies decreased and IVAs increased as a result.
But why does it appear that while creditors are working overtime to stem the tide of IVAs that it does not result in increased bankruptcies? A logical answer is that people just don't want to go bankrupt.
In an ongoing survey regarding IVAs, Myvesta UK has discovered that for those that have tried the IVA option to resolve their debt problem in a fair, reasonable and sustainable way through an IVA, only 43.75% of respondents said they would go bankrupt as a result of their IVA repayment proposal being rejected. 37.5% said they would enter an informal debt management plan and 18.75% said they would do nothing for now and evaluate options latter.
So more than 56% of respondents are telling Myvesta UK that when faced with financial problems and living through debt stress, they would elect to not go bankrupt if their repayment plan, put together by a licensed and regulated Insolvency Practitioner, was rejected.
What I find disturbing in this situation is that the negative social stigma about bankruptcy might actually be holding back people that have had their IVA repayment proposals unfairly rejected, from petitioning for bankruptcy and eliminating their debt completely. At least going bankrupt would address the situation and allow the person to move forward with their life. Otherwise, debtors are left in limbo, a wonderfully terrible debt purgatory, with their debt neither resolved or addressed.
Creditors might find this situation very palatable and desirable since the consumers that are rebuffed from seeking a solution and protection in an Individual Voluntary Arrangement are successfully left in an unprotected position where creditors can take a second, third and forth bite at the collecting apple.
So while the 2007 IVA figures continue to drop, month-by-month, we should not be surprised if the profit driven motives of creditors to remove from consumers the opportunity to repay their debt in an IVA does not result in a direct correlation to an increase in bankruptcies. That is at least as long as consumers do view going bankrupt as an avoidable event.
What the figures show me is that in 2006 when people learned that they could repay their debt in a binding IVA plan rather than go bankrupt, they did. But in 2007, when creditors are refusing their repayment offers, they are hesitant about running to bankruptcy.
This hesitation on the part of consumers does not make the underlying issues or situation go away. The current status unfortunately only restricts access to good debt solutions at a time when consumer indebtedness is building in the UK. The pressure can only be contained for so long and if things don't change to allow consumers to enter into fair and binding Individual Voluntary Arrangements, it would not be surprising to see a future explosion of bankruptcies when the lid blows.
