I thought I’d just take a moment to get back to basics for a moment. There has been some talk about putting consumers into a Debt Management Plan (DMP) if the IVA is going to be corrupted by creditors.

On the DMP tin it should say “Use With Caution”. What you need to understand about a DMP is that it is not binding. It is a completely informal plan that hinges on the trust that creditors will honour the terms in the DMP proposal until the plan is finished. The problem is that I can’t be confident if we can trust creditors in the UK these days to do the right thing in light of the shenanigans they’ve pulled with the Insolvency Exchange.

I want to be completely transparent and at Myvesta we do offer a Debt Management Plan solution but we are very careful to use the DMP as a holding tank or stepping stone solution rather than have an expectation that it will be a long term solution. The last thing I want is a consumer in a 10 year DMP with resolving their debt.

In the US, creditors would often buy and sell portfolios of DMP accounts between them. Once they were transferred they would often no honour the terms agreed to before the sale. In one case I stood up to the creditor and said that it was not right to change the agreed terms mid-stream and they basically told me “Take us to court. And if you take us to court we’ll drop all of your clients.” Sure felt like blackmail to me. Instead we informed that clients what had happened and gave them the choice to pay under the new terms or seek alternative solutions. Many went bankrupt.

As we allow the IVA process to become diluted with creditor control it leaves the consumer with several options:

  1.  Do nothing.
  2.  Resume contractual payments.
  3.  Pay what they can afford and be damned with if it reduces their debt.
  4.  Borrow against the property if they have equity.
  5.  Borrow from friends or family members.
  6.  Bankruptcy.
  7.  A DMP if they feel their situation will improve in the near future so they can then enter a fair, reasonable and sustainable IVA.

So as you can see, the removal of the IVA as a good and valid tool to help consumers just leaves good people with bad debt stuck in an essential quicksand of options.