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Our response to the HM Treasury consultation on Statutory Debt Repayment Plan

Download our response

The Insolvency Service published a call for evidence to support its review of the personal insolvency framework.

The call for evidence broadly sought views on the purpose and objectives of insolvency, how well the current insolvency solutions are working and opportunities to improve the insolvency framework.

While clients who are able to access insolvency solutions generally experience good outcomes, there are a number of problems with the present framework. For example:

  • Access to insolvency is restricted by unaffordable fees, concerns about treatment of assets and stigma, so many of those who need a fresh start are excluded.
  • There is no safe route to insolvency, with consumers exposed in particular to mis-selling of IVAs and poor outcomes.
  • Insolvency solutions can be difficult to set up or fail when clients’ circumstances change, while difficulty meeting repayments suggests that budgeting guidelines can be overly restrictive.
  • The framework is not effective enough in supporting financial resilience with factors such as stigma, financial restrictions and credit reporting undermining recovery.

In our response, we make the case that increasing levels of consumer financial vulnerability and the evidence that consumer credit products and firms conduct contributes to problem debt should prompt a rethink of the current insolvency framework.

In the short- to medium-term, the Insolvency Service should focus on reducing access barriers, ensuring solutions function well and addressing problems in the IVA market by:

  • Scrapping DRO fees and reducing bankruptcy fees, at a minimum for those receiving means-tested social security payments, and examining the potential to pay the fee in instalments alongside repayments (rather than up front).
  • Reviewing and increasing flexibilities within DROs and bankruptcy, such as the treatment of assets, missed debts and changes in income to make procedures more sustainable.
  • Addressing high failure rates and poor client journeys in the IVA market by (among other measures) reforming fees to incentivise sustainable solutions and requiring everyone to access FCA-regulated debt advice before entering a personal insolvency solution.

A broader aim of the review should be a simpler and better joined-up personal insolvency framework to reflect a world with highly developed consumer credit markets and significant consumer financial vulnerability.

This would require the Insolvency service to broaden the policy rationale for personal insolvency framework beyond the ‘fresh start’ and ‘can pay, will pay’ focus to a more holistic focus on outcomes.

In turn, a longer-term aim should be simplifying the solution mix, rethinking discrepancies in treatment of income, assets and changing circumstances, and a more coherent approach to application fees and funding (including funding of scheme providers).