Consumers warned of mis-leading IVA promotions
The Office of Fair Trading (OFT) says several firms have been accessing IVA customer information from the public register of people, and targeting them with misleading marketing material that suggests they may have been mis-sold an IVA. The literature urges consumers to instead consider taking bankruptcy – even though this might not actually be the most suitable course of action.
Is it misleading?
The OFT says unsolicited mail may be misleading if it fails to explain to people the consequences of terminating an IVA agreement and going bankrupt.
One consequence includes people seeing the money they paid to set up the IVA being used to pay for the insolvency practitioner’s fees rather than paying off the debt. In addition, bankruptcy has far reaching consequences on consumers such as losing control of your assets, potentially losing your home and facing restrictions in future borrowing and running a business.
So far the OFT has identified 12 businesses sending this sort of mailing, and it has issued them with warnings. Unless they amend any misleading claims within the next four weeks they could face fines or lose their consumer credit licences.
Ray Watson, director for consumer credit at the OFT, says: “Tackling companies who are engaging in unfair business practices by targeting vulnerable consumers with misleading advice and information, particularly if it leads to consumers becoming more over-indebted, is a key priority for the OFT.”
Generally speaking, insolvency is to businesses what bankruptcy is to individuals. A company is insolvent if the value of its assets is less than the amount of its liabilities, or it is unable to pay its liabilities (loan payments) as they fall due. It’s an offence for an insolvent company to keep trading, so the main options available to an insolvent company are: voluntary liquidation, compulsory liquidation, administration or a company voluntary arrangement.
An alternative to bankruptcy, an Individual Voluntary Agreement is a legal agreement drawn up between the debtor, all creditors to whom money is owed (banks, credit cards etc) and a licensed insolvency practitioner who then administers the arrangement. Unlike a debt management plan (DMP), which is a more casual arrangement, an IVA is a legal process by which your unsecured creditors cannot then pursue you for payment of your debts outside the agreement. To qualify for an IVA, you must be a private individual (not a company), your debts must exceed £15,000 and you must have a regular income. If you are a homeowner with equity in the property, you may have to remortgage and use the equity to clear some of the debt before you enter into an IVA.
A person (or business) unable to pay the debts it owes creditors can either volunteer or be forced into bankruptcy – a legal proceeding where an insolvent person can be relieved of their financial obligations – but loses control over their bank accounts. Bankruptcy is not a soft option. Although it may wipe the financial slate clean, it is extremely harmful to a person’s credit rating (it will stay on your credit record for six years) and will adversely affect your future dealings with financial institutions. Bankruptcy costs £600 paid upfront.