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Cost of living crisis

26th July 2022


Peter Worrall.

Associate Solicitor

Moore Barlow

Following new guidance from the Insolvency Service, creditors will need to change their approach for recouping funds from debtors. Peter Worrall, associate solicitor at Moore Barlow, highlights where changes need to be made and how they can help creditors ensure debt fulfilment.

Recognising the impact of the cost-of-living crisis, the Insolvency Service has issued new guidance to creditors asking them to re-assess the level of repayments involved in Individual Voluntary  arrangements (IVAs), to ensure that they remain as feasible for debtors as possible.

The number of IVAs registered across England and Wales across 2021-2022 now numbers 105,196. This figure means that creditors across the country will need to be particularly mindful of what the  new guidance will entail for their business.

What does the new guidance mean for your approach?

Creditors are advised to make considerations for any debtor requesting lower repayments of up to 50% their original value, to a minimum of £75 a month.

Payments reduced to lower than that should prompt the insolvency practitioner to consider whether to end the agreement early, based on the payments already made into the plan or seek a different arrangement.

Extension to existing Individual Voluntary Arrangements should be made, up to an extra year where possible. However, the guidance agrees that an extension shouldn’t happen if it means the  arrangement lasts longer than 7 years.

As another option, debt relief orders may instead be used as a way to alleviate the need for payments for some forms of debt over a fixed period.

Creditors have been asked to consider any request to lower IVA payments where possible, to ease the burden faced by debtors as the cost-of-living crisis continues.

The bottom line for creditors

Ultimately, while the guidance may be steering to a more lenient approach, savvy creditors should make the most of this opportunity to reclaim as much back from their debtors as possible, by seeking open communication with them to form realistic payment plans.

This will ensure that cashflow continues as more payments will be able to be fulfilled, as well as presenting an opportunity for more positive interactions between creditors and their debtors.

To learn more about these changes, and what businesses can do to recover debts owed to them, contact peter.worrall@moorebarlow.com.

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