In the UK the cost of petitioning for your own bankruptcy is very cheap compared to other jurisdictions and even compared to some of the other insolvency solutions in the UK. The main reason for this is that you can do it yourself at a cost of about £600. The cost is a little less in Northern Ireland.
All you need to be able to do is to fill out a few forms. For some people this can be a tricky task but for most people nowadays, it’s a piece of cake. So if you have sufficient funds and can fill out the forms all you have to do is to bring them to your local bankruptcy court and ask for your petition to be dealt with. You do not even have to use a solicitor. Court staff are also usually very helpful in assisting members of the public to complete the forms correctly.
So why are certain firms touting for business and offering to carry out this process for a fee of £1,500 or more?
For filling out a few forms, these firms are pocketing up to £1,000 per case. It’s a lucrative business but unfortunately it is at the expense of the poor unfortunate debtor who having become insolvent must now fork out an extra £1,000 more than is necessary to avail of the bankruptcy solution.
To drum up business, some firms have even claimed that debtors were mis-sold IVAs and have been encouraging clients who are often in perfectly good and affordable IVAs to throw it all up and to go down the bankruptcy route. In some cases debtors may be several years into their IVAs and yet they are being encouraged by these firms to stop making payments into their IVA (and thereby causing them to fail) and to petition for their own bankruptcy. They tell debtors that – ‘you may no longer be required to pay your current IVA payment’. These vulture companies even suggest that the debtor may be entitled to compensation – ‘should it be found or you decide that you have been placed in an inappropriate debt solution’. If the unfortunate debtor believes these claims and decides to petition for bankruptcy, the touting firm then grabs its £1,000 fee – for filling out a few forms – and walks away, having messed up the naïve and innocent debtor’s financial affairs.
What marketing do these touting firms do?
Where do they get the names of debtors already in an IVA? They simply trawl the Insolvency Register free on line for the names of debtors in an IVA and then cold contact them. What could be simpler – or cheaper? This particular con has very low initial costs and very few entry barriers for the unscrupulous firm.
And if the debtor takes the bait and stops paying into his IVA what happens?
For a start, the failure of the IVA and the commencement of bankruptcy mean that the clock starts ticking again in terms of the damage done to the debtor’s credit file. Let’s suppose that the IVA had already run successfully for three years. When the bankruptcy now commences the clock is reset and the credit file cannot be repaired for another six years, instead of for just another three years if the IVA had been allowed to run its course.
For such touting firms to claim that an IVA was mis-sold when an alternative solution might have been more appropriate for the debtor implies that the advising Insolvency Practitioner (IP) in the IVA – the nominee – failed to provide the debtor with adequate explanations of all available options, including bankruptcy. The touting firms are thus alleging that the IP is engaging in the very malpractice that they themselves are up to their necks in – selling a service for commercial gain only, regardless of the best interest of the debtor or indeed of the creditors. It is time to call a halt.
What has been done to stop these odious practices?
The OFT has already taken action to prohibit activities such as these by rogue touting firms. Insolvency Practitioners themselves challenge such activities on a case by case basis, in order to protect their reputation for integrity supported by their regulatory bodies. The Insolvency Service itself could also restrict access to the IVA Register so that only those with a truly valid reason could search it. For example such searches could be restricted to insolvency practitioners and banks. It certainly should not be available to everyone free of charge. In Northern Ireland you have the ludicrous situation that you have to pay to carry out a bankruptcy search but an IVA search is free. Both searches are free and on line on the UK mainland.