Credit Act changes cause IVA confusion

Insolvency practitioners could be inundated with confused debtors struggling to understand the changes made by the Consumer Credit Act.

The act took effect in October and the changes mean that debtors in an individual voluntary arrangement, set up by IPs or debt advisers, will be sent information regarding their outstanding balance and charges by the creditors.

The information is not a request for payment but IPs fear they are set to be inundated with calls from IVA holders who have not had any correspondence with their creditors, some for many years.

‘This will be an extra burden and cost to the insolvency practitioners,’ said Mark Sands, insolvency director at KPMG.

‘The sooner it is stopped and looked at properly by the government the better.

'Some of the consumers in IVAs may not have heard from their creditors in years. They may not understand what has changed and the IPs may be unprepared to handle the problems,’ he added.

The changes mean that banks will now be faced with an increased workload as they will have to send regular updates on the balance of IVA accounts.

Andy Davie, founder of IVA.co.uk, an information site on personal insolvency and IVAs, said that debtors were already confused about the letters they had received.

He added that consumers had started to post confused and worried questions on the website’s forum.

‘People are confused and think it is a demand for payment. Some went into an IVA to be protected from their creditors and to stop correspondence. To receive something out of the blue from them must be alarming,’ said Davie.

‘Creditors should be dealing with this via the IPs. The IPs could send on the information with a covering letter explaining that it is just a statement’ he added.

The confusion continues as the government has stated that regular information about the IVA has to be sent to the last known address of the debtor even if they have moved or died.