Charities welcome government’s personal insolvency review response

The review, which ran from July to October last year, sought views on three key areas. This includes the underlying purpose of the framework and where the balance should fall between providing debtors with a fresh start and providing returns to creditors.  

As well as this, it investigated the funding of the framework – whether the burden of costs is apportioned fairly, and some of the wider consequential costs of bankruptcy. Finally, it was designed to discover whether the current personal insolvency procedures are working effectively.  

Based on the feedback it received, the government has acknowledged there are shortcomings in how the current regime operates and that it needs reform to reflect changes in the way society operates and attitudes towards personal financial difficulty since the framework was introduced 40 years ago.  

This includes a strong message from stakeholders that some are not able to deal with their debt because the barriers to entry are too high, there are shortfalls in the current procedures and there are inconsistencies in the treatment of individuals and the quality of service provided.  

Additionally, it suggests the regime does not operate as effectively as it could for the creditor community in terms of costs and resources, impacting the prospect of those in financial difficulty achieving any sort of debt recovery.  

Alongside supporting those in financial distress, the government stressed the importance that the framework provides prompt returns to creditor where possible – ensuring both confidence in the regime as well as being beneficial for the economy and business investment.  

Off the back of this, the government has said it’ll work with stakeholders and other interested parties to develop proposals for reform for further public consultation, covering areas such as the routes to insolvency, the barriers to entry and how to ensure an individual accesses the most appropriate solution for their needs.  

It’ll also explore the various current processes, the interaction between them and whether changes need to be made, how to tackle the few who are reckless or deliberately fraudulent, and the options for structural reform of the overall framework.  

In response, StepChange’s chief executive Vikki Brownridge welcomed the news, adding that the charity is “pleased to see it recongise existing shortcomings” which make accessing and navigating insolvency options a challenge for financially vulnerable individuals. 

She added: “It’s vital that insolvency solutions are accessible and provide a safe route out of debt, leading to long-term good outcomes for consumers. The current framework leaves consumers vulnerable to harm from unaffordable fees, a lack of flexibility and aggressive commercial practices.  

“The mis-selling of individual voluntary arrangements (IVAs) is a particular area of concern that needs urgent action. We look forward to working closely with the Insolvency Service as it looks to make structural reforms to the personal insolvency landscape.  

“In the context of the cost-of-living crisis, in which people’s financial resilience has been eroded, insolvency must be fit for purpose in providing effective debt relief.” 

Meanwhile, the Money Advice Trust’s director of external affairs and partnerships said: “I am encouraged by the Insolvency Service’s findings that fees attached to Debt Relief Orders and bankruptcy options can be a barrier to people accessing vital support, something we have continued to highlight.  

“With millions of households already struggling due to the impact of high costs, tackling these barriers, to ensure people are able to access safe routes out of debt, is now more important than ever. We urge the government to bring in reform as soon as possible.

“However, action is needed now to help people struggling to access suitable debt options due to fees, especially as the cost of living continues to pile on more pressure.”