East of England: Fall in individual insolvencies may mask informal debt problem, says insolvency trade body

11/08/2011 Shay Lettice, a partner at PEM Accountants, Salisbury House, Station Road, Cambridge, , h

11/08/2011 Shay Lettice, a partner at PEM Accountants, Salisbury House, Station Road, Cambridge, , has been appointed Chairman of the eastern region of R3, the national insolvency trade body. Picture By Roger Adams Photographer - Credit: Roger Adams

A fall in individual insolvencies in the East of England may mask informal debt problem, an insolvency trade body has warned.

Government statistics issued this month by The Insolvency Service show a significant fall in the annual number of individual insolvencies in the East of England.

It shows that in the three years since their peak in 2009, new individual insolvency cases have decreased by 22% in the East of England, from 14,293 to 11,108.

According to insolvency trade body R3, the fall in individual insolvencies may be masking a wider informal debt problem in the region.

R3’s eastern region chairman Shay Lettice, a partner at Cambridge accountancy firm Peters Elworthy & Moore [PEM], said: “Thousands of individuals in the region are currently left off the official insolvency statistics, even though they are unable to pay off their debts, because they are in Debt Management Plans (DMPs) which sit outside the formal insolvency regime.

“The official Insolvency Service figures are only the tip of the iceberg in establishing how great the personal debt problem is. If we are to know the true state of personal insolvency, then there needs to be a central register that keeps track of numbers of DMPs.”

R3 is also concerned that recovery from personal debt problems is being held back by current legislation, which often makes it difficult for individuals to use a formal insolvency process that is appropriate for their situation.

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“Frequently, insolvent individuals cannot afford the fees to enter bankruptcy, but they have too much debt or assets to qualify for alternatives like Debt Relief Orders,” said Mr Lettic. “This leaves the debtor caught in the middle and exposed to their creditors.

“Individual Voluntary Arrangements can offer an alternative solution. They do not have the same fee barrier as bankruptcy, but they do have to be agreed by creditors, which can be easier said than done.

“R3 strongly urges the Government to look more closely at these insolvency stumbling blocks so that professional advisers can be as effective as possible in helping those facing financial difficulty.”