Curtail Excessive Use Of Debt Management Plans: Invocas Chief

It has been revealed that Banks are encouraging the excessive use of unregulated debt management plans to keep bad debts off their balance sheets and failing to provide proper debt advice, insolvency practitioners are warning.

According to sources of the industry, Amid expectations of record personal bankruptcies this year, banks are hitting a lot of the potential smash up which they are going through.

Stephen Lightley, chief executive of Invocas, which specialises in Protected Trust Deeds, Scotland's version of the Individual Voluntary Arrangements (IVAs) which provide a planned alternative to bankruptcy reveal that "There is no need of requirements to be made for debt management cases. The debts are actually performing, but the monetary stuff of the debt is precisely the same. It is basically a trend that is mounting."

A rash of companies sells debt management plans as providing a cutback in debt with a "single reasonable monthly repayment". The company negotiates with creditors on the behalf of borrower, but any freeze on interest or charges by a creditor will cost 15% to 17.5% of a monthly repayment.

Citizens Advice warns that exchanging an unsecured loan to a secured loan puts homes at risk, and the typical cutback in monthly payments means that you can avail the benefit of longer repayment term into decades.

According to Graham Rumney, chief executive of R3, "While DMPs can be a most suitable choice for those people who have appropriate levels of debt; we have seen evidence of them lasting up to 10 years, and got to know about extended to 70 years. It may be in the bank's interest to turn personal debtors into debt-management plans as they are kept as performing assets on the balance sheet, but it will not always be in the interest of debtors."

Rumney reveals that while the government has called for the banking code to be extended in the light of the downturn in the economy, the code "regarding debt management plans but entirely ignores a reference to the official statutory process of bankruptcy and IVAs, which are the government's own debt solutions".

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