June 12, 2008 | posted by Pam Atherton in Banking, Loans, Mortgages |

It must be a sign of the times. As though the soaring number of individuals with serious debt problems was not bad enough, a new breed of vulture is trying to exploit their misery by giving them poor advice. 

The Office of Fair Trading has warned a dozen firms to stop making false claims to individuals who have declared themselves insolvent and taken out an Individual Voluntary Arrangement or IVA.

The latter is an agreement,  between a debtor and his or her creditors, to repay  a portion of the money they owe over a set period of time, with the help of an insolvency practioner.

There is less stigma associated with IVAs compared to bankruptcy and you will normally be able to keep your home.  To abandon such an agreement could have serious consequences as the cost of setting up an IVA can be considerable and is irrecoverable.

Bankruptcy, by contrast, is the ‘nuclear option’ for anyone in serious debt.  It can mean the losing your home, forfeiting control over your finances, losing access to credit and can place restrictions on the type of employment you can pursue.

The offending firms have been sending unsolicited letters to insolvent individuals advising them to cancel their IVAs and to go bankrupt instead. The letters suggest that the individual’s original IVA might have been mis-sold or inappropriate and that to go bankrupct would be a better course of action.

The OFT has warned the companies that if they do not stop their mailings they will be fined or closed down because encouraging someone to scrap an IVA could make their financial position worse.

 If you want to complain about receipt of one of these letters, or have another consumer gripe, the OFT Direct website  is a mine of useful information on your consumer rights and how to gain redress  http://www.consumerdirect.gov.uk/

There were more than 44,331 IVAs taken out in 2006, compared with fewer than 5,000 in 1998. The figures began to fall during 2007, but are expected to rise again during 2008.

The number of individuals choosing bankruptcy stood at 13,080 in the first quarter of 2008. This was up from 11,674 in the previous three months, but a decrease of 13 per cent on the number of petitions in the same quarter of 2007.