Debt companies hit hard times as creditors get tough
Debt companies are experiencing tough times as more creditors refuse to accept the terms of the individual voluntary arrangements (IVAs) offered to them on behalf of their indebted clients.
An IVA is an alternative to bankruptcy, whereby creditors come to an arrangement with their creditors, usually banks and other lenders, to have a proportion of their debts written off and to repay the remainder over a number of years.
A host of companies has sprung up in recent years specialising in setting up IVAs for people in return for a commission on each case, making a substantial UK investment in this activity.
The business looked set to be a profitable one, but in recent months creditors have started rejecting the offers made by the debt management companies and demanding that creditors are put into bankruptcy, for example. This means debtors may have to sell their homes to settle their debts.
Two companies – Debt Free Direct and Accuma – admitted that some lenders were now refusing their proposals and demanding that they cut their fees, a severe blow to their entire method of generating profits and their UK investment in the business.
Another firm – debts.co.uk – reassured investors last October that business was healthy and that it soon hoped to be processing 500 IVAs per month, but that proved to be an overly optimistic forecast.
Accuma warned of lower than expected business levels and blamed “increased resistance amongst a small minority of creditors that is affecting IVA approval rates.”