Warning issued over ‘easy fix’ debt deals

Just Credit Union said an Individual Voluntary Arrangement (IVA) is a form of debt management and that entering into one of these should be a last resort for re-paying debts.

Charities have previously raised concerns that some people may be pushed towards debt solutions that are not right for their individual needs.

The Insolvency Service this week announced they have commissioned research into the take-up of individual voluntary arrangements, a move which has been welcomed by Just Credit Union.

The Insolvency Service is looking into concerns around the potential mis-selling of IVAs whereby money is shared out between creditors, but according to Just Credit Union, high fees are charged. The service has said it wants to understand the experience of some consumers when taking out an IVA.

Steve Barras, Development Manager at Just Credit Union said: “IVA’s might seem like a straightforward attractive solution to repaying debt, but it is important that people fully understand the consequences before getting tied down. The insolvency practitioners who provide and promote IVAs are often more focused on the large fees they can earn than explaining the full consequences.

“They can be asked to sell their car or re-mortgage their home. Any savings will go into the scheme.

“IVA’s also come with major long-term implications for future borrowing. For example, they can affect someone’s ability to borrow for up to 12 years.” and will be added to their credit history, often making it very difficult to borrow again - even for basic borrowing like a phone contract.

“Whilst in the IVA there are legal restrictions on borrowing - even from family and friends. Sadly, people come to Just Credit Union for an affordable loan and are in an IVA arrangement which means we just cannot help.”

He said Just Credit Union has produced a guide to the full implications of an IVA and provided some practical alternatives to consider.

Steve added: “We regularly see what appear to be poor practices. Many people come to us to request a loan without realising the IVA they have entered with an Insolvency Practitioner makes future loans with us impossible.

“We also see cases where worryingly high fees are charged. A recent case showed an individual with a £5,000 debt was about to sign an IVA agreement where the fees were an additional £3,650. Thankfully, we were able to direct them to free and impartial advice.

“We highly recommend people in a debt position to seek the help of independent, not-for-profit, debt advisors. There are several free reputable organisations.

In the guide we have provided links to organisations such as Step Change, Citizens Advice and Christian Against Poverty.

“They will help debtors understand all the options and implications and help find the best solution,” he added.

The guide is available at justcreditunion.org