The options open for people who fall into debt have needed reform for some time, but the Covid-19 pandemic has made the issue urgent. The Money Advice Trust has now published a new briefing, urging the government to commission a full review of the options for debt management.
The Debt Crisis
The need for review of debt options was already being urged before this year. In 2018, the Money Advice Service (now part of the Money and Pensions Service) published the results of its own survey, recommending changes to the current system.
According to Jane Tully, director of external affairs at the Money Advice Trust, “The framework we now have has evolved in a piecemeal fashion over several decades – and there is a risk that more and more people will fall through its gaps in the coming years.”
The Covid-19 crisis has, of course, made this situation worse. Many people who were already struggling have seen their income hit. This makes it harder to keep up with payments, as well as making fees for bankruptcy and debt relief orders (DROs) tougher to meet.
Proposals by the Money Advice Trust
The Money Advice Trust have called for “robust and effective debt options that work within the new context of Covid-19” as well as in the longer term. Key proposals are:
- Reducing debt-relief fees for bankruptcies and DROs and waiving them for anyone on income-related benefits.
- Adjusting the Individual Voluntary Arrangement (IVA) Protocol to make it easier for people with existing IVAs to maintain them.
- Reviewing all statutory insolvency solutions in term of debt and asset limits.
- Review the option of “low and grow” Debt Management Plans (DMPs).
They’re also encouraging the government to proceed with plans for introducing Statutory Debt Repayment Plans, in addition to the Breathing Space scheme due to start in Spring 2021.
The Need for Action
It’s clearly in nobody’s interests for people in debt to be unable to meet their requirements or to put their debts under formal arrangements in the first place. The debtor is likely to fall more deeply into debt, while the chance of creditors getting their money back is considerably reduced.
“This review,” according to Jane Tully, “should look both at the short-term changes required to help people in the immediate aftermath of Covid-19, and the long-term changes needed to reset and future-proof our debt options framework.”
If you have debtors who are struggling to meet their commitments in the pandemic, give me a call to discuss how to come to the best possible arrangement.