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Prior to the devastation in difficult personal financial situations that occurred as a result of the economic downturn and subsequent recession, individuals could be, in retrospect, seen to be regularly abusing facilities of credit. Through poor or mismanagement of credit in the manner of failing to pay full balances owed, instead making minimum payments, and borrowing outwith sustainable means, many individuals are now finding themselves in severe financial difficulty.

The British Government today have devised the outlines of a proposal that would implement strategies that would allow applications for insolvency to be petitioned in ways that are quicker than they have traditionally been. However, what are the potential ramifications of making serious debt solutions more accessible? David Brown explores the issues that could arise as a consequence.

Typically, insolvency is a process that is most closely associated in the public eye with the petition for bankruptcy, or its Scottish equivalent sequestration, however there are alternative ways for an individual to be declared insolvent, such as Individual Voluntary Arrangements (IVAs), their Scottish equivalent being Protected Trust Deeds, and Debt Relief Orders. While all of these debt processes are undertaken for the identical purpose of eliminating serious debts, the manner in which they operate differ vastly.

The new proposals outlined by the British Government that aim to decrease the time required to process applications for insolvency contain specific plans to enable petitioners to apply in an online or postal capacity. The reasons detailed for the implementation of these plans are two-fold: not only would it facilitate applications for individuals suffering under both the burden of the intense stigma associated with personal debt but also with their financial difficulties, it would also enable courts to dedicate more time to the intricacies and finer aspects of an insolvency process.

The Department for Business, Innovation and Skills advocated the pragmatic nature of these new proposals, acknowledging that under the current application system presently in place, individuals could potentially be required to wait up to three months before their petition was called before a court. The new process of alternative methods of insolvency application would not only attempt to avoid the stigma of bankruptcy but it would also afford those with no realistic prospects of repaying their debts a quicker method of providing their creditors with a proportion of the debts owed.

The move by the Government has been welcomed on many fronts, not least from charity organisations that deal directly with individuals with crippling levels of personal debt. The Consumer Credit Counselling Service (CCCS) has praised the objectives set in proposals, however has warned that the new processes of application should not be utilised before a comprehensive understanding of the consequences has been attained. The new proposals should be complemented by independent, professional debt advice so as to enable individuals to understand the best suited legal agreement required to eliminate their situation of unmanageable debt.

About the Writer:

This article was written by David Brown on behalf of IVA.net – a website providing free, non-obligatory information, guides and tools on matters of personal debt and financial difficulty.