Advice NI response to the The Insolvency Service’s consultation on Insolvency Proceedings: Debt relief orders and the bankruptcy petition limit

Detailed below is Advice NI's response to proposed insolvency changes in England and Wales

Advice NI is a membership organisation that exists to provide leadership, representation and support for independent advice organisations to facilitate the delivery of high quality, sustainable advice services. Advice NI exists to provide its members with the capacity and tools to ensure effective advice services delivery. This includes: advice and information management systems, funding and planning, quality assurance support, NVQs in advice and guidance, social policy co-ordination and ICT development.

Membership of Advice NI is for organisations that provide significant advice and information services to the public. Advice NI has over 65 member organisations operating throughout Northern Ireland and providing information and advocacy services to over 150,000 people each year dealing with over 270,000 enquiries on an extensive range of matters including: social security, housing, debt, consumer and employment issues. For further information, please visit www.adviceni.net. Advice NI has been a Competent Authority through the Northern Ireland Insolvency Service and since 2011 we have submitted 729 DRO applications which amount to is 42% of the overall total, only 1% of our applications have been declined. Currently we have 29 approved Intermediaries.   

Advice NI manages the Department of Enterprise Trade and Investment’s (DETI) money and debt programme. Debt Action NI has been operating since 2009. Since then the project has helped nearly 17,000 people deal with over £263 million in debt.  Over 12,200 of these clients and nearly £175.5 million of debt were dealt with by the new integrated Debt Action NI service which has been operating across NI since August 2012. The new service offers a number of access points and integrates telephone, face to face and web based advice services. For further information, please visit www.adviceni.net or www.debtaction-ni.net.

Advice NI also manages the NI Business Debtline which is a free telephone service offering tailored, independent and impartial advice for sole traders, partnerships and Limited Companies. It has been operating since 2012 and is currently funded by the Money Advice Trust. Since June 2013 the adviser has helped 500 businesses and has dealt with 1,500 calls. For further information and to access our factsheets visit www.adviceni.net or www.bdl.org.uk

Advice NI recognises that this is a consultation for England and Wales but we believe that any future changes will eventually be reflected in Northern Ireland legislation.

Q1 When responding can you please indicate the size of your organisation (not applicable to individuals). This will be useful for any impact assessment.

50-249 = Medium

Q2 What level do you think the maximum debt amount should be set to and why?

Based on the information provided in the consultation document we would advocate that the maximum debt amount should increase to £20,000. We believe that this is reflective of the CPI (2005) inflation adjustment and would cover the increase until the next potential consultation period.

Also a recent report was published by StepChange which highlighted that the amount of unsecured debt owed by their customers is currently at £18,360 and is increasing.

Q3 Do you think there should be a minimum limit of debts?

No we believe there should be no minimum limit of debt as this will be relative to each individual circumstance.

Q4 What level do you think the maximum asset amount should be set at and why?

We believe the asset limit should increase to £3,000. This would allow for £1,000 assets and £2,000 for a vehicle. However the official receiver should have discretionary powers, within reason, to assess over these amounts depending on the clients individual circumstances, for example if the person is disabled, lives in a rural area with poor public transport, size of family etc. When assessing the vehicle the official receiver should also consider what, if any, financial gain the client will make if they were to sell their vehicle and buy another at a lower value. A recent This is Money article highlighted that it is more expensive to run an older car, http://www.thisismoney.co.uk/money/cars/article-2397110/New-car-vs-old-Whats-cheaper.html. This may have an impact on the client’s financial statement as associated car costs may increase.

We believe the current asset limit of £300 is too low, many advisers anecdotally tell us that credit unions are withholding £300 worth of shares to stop clients accessing the DRO. However, they tell us that many would not have £1,000 worth of assets and it would be harder for the credit unions to hinder applications. We would advocate an increase in the value of the car as many clients would rarely have a car that would be less than £1,000 as these cars are generally more expensive to maintain. In bankruptcy, the official receiver has more discretion when assessing a vehicle’s value. We recently had a client presented with debt of approximately £4,500, they had no surplus income and were in receipt of Employment Support Allowance. The only thing stopping him from applying for a DRO was the car was valued at £1,700. Therefore, if there was more discretion on the value of the car this client potentially could have made a DRO application and dealt with his debts.

Q5 What level do you think the surplus income amount should be set at and why?

Advice NI would recommend that the surplus income should increase to £75. The reason would be similar to Q.2 that using the CPI (2005) inflation adjustment figure, the current amount would be valued at £63 and increasing it to £75 would give an allowance until the next consultation period. We also believe that allowing this extra £25 will help clients absorb the cost of sudden expenses including the increases in cost of living, or emergency situations such as a car or a white good break down. 

Q6 Do you think additional costs of the competent authorities should be covered by the application fee? If so, how much and why?

We believe the £10 competent authority fee does not cover the costs of the work that an intermediary does to collate and submit applications. On average it takes our intermediaries approximately four hours to complete and submit a form. We believe this figure should increase due to the amount of time being spent on submitting an application. However, we would not advocate any increase in the application fee as we have a number of clients who cannot even afford the current fee.

Q7 Do existing payment systems provide sufficient coverage to enable debtors to pay the fee? If not, what other payment systems should be added?

Advice NI would recommend the Insolvency Service should consider using online and telephone services for people to pay. We believe that these services should not cost the client any additional expense. Northern Ireland clients do not have access to the instalment payment method and perhaps these systems should be synchronised so that no UK citizen is unfavourably discriminated against depending on where they live. However, we would like to know more information about the drop off rate of clients who don’t pay in full using this method.

Q8 Do you consider the six year restriction is appropriate? If not, please provide reasoning for an alternative.

We agree with the current system of 6 years as it is in line with bankruptcy legislation and the length of time a default shows on a credit report. We would strongly oppose only allowing someone to access DROs once or having to wait 10 years to access them again. We believe that 6 years is an adequate deterrent. From the statistics provided in the consultation, the amount of DROs refused on this basis only accounted for 0.01% which is miniscule on the whole.

Q9 Do you consider the competent authority/intermediary model is working well? How could it be improved? Would another model be better?

We agree the current system is working well. We believe that clients are more than likely to open up to intermediaries and this method ensures that there is no extortionate costs placed on the client which in our experience can happen for clients making a claim for bankruptcy through legal representatives.

Q10 Are debtors who are suitable for DROs aware of their existence?

Our experience is very mixed, we have clients who will present and openly tell the adviser they want to apply for a DRO. Mostly these clients have heard about them through word of mouth from friends or family. The other extreme is clients who have never had to use an advice service before and know nothing about any option. As highlighted in our 2013-14 Debt Action NI Annual Report most of our clients struggle with their finances for over two years before seeking advice. A full copy of the report can be found here. We believe that the Insolvency Service should promote this option more and should work with the Competent Authorities on how this could be done.

Q11 Do debtors know to contact a competent authority to pursue a DRO application?

See response to Q.10, those who are well informed know what they need to do but others it will rely on the debt adviser to identify eligibility for a DRO.

Q12 Is there any issue with the geographical coverage of the competent authority networks?

Not Applicable. We believe Northern Ireland is well covered.

Q13 Is there any issue with the speed of DROs applications? If yes how can it be improved?

It has been our experience in Northern Ireland that it can take a number of weeks before a DRO is granted which is well above the 99% 48 hour approval rate for England and Wales.

Q14 Is there any issue with the number of intermediaries? If yes, is this a funding issue?

Not applicable for Northern Ireland

Q15 Do you think that the revocation system is working effectively? If not, what changes should be made? And Q16 Is the current treatment of increases in income and windfalls appropriate?

Since 2011, we have only had two applications revoke for genuine reason, one was the death of the applicant and the other was a significant windfall. We agree that increases in income and windfalls should remain the discretion of the official receiver and that cases should only be revoked if creditors are expected to benefit from the change.

Q17 Do you consider that the DRO restriction system is working well to deter reckless behaviour? What changes should be made, if any?

No comment has have little experience of DRO restrictions.

Q18 Do you consider that the DRO regime has encouraged debtors to seek debt relief at an earlier stage? If yes, please explain how this has been a benefit including any case study evidence?

This is hard to assess as over two thirds of our clients have had financial difficulties for over 12 months. As stated previously in Q.10, there are clients who have heard by word of mouth about DROs and will approach Debt Action NI wanting to make an application. However there are people who still do not know about this form of debt relief and will only become aware once the adviser is assessing their case.

Q19 What is an appropriate length of time for discharge?

We believe the current 12 months is an appropriate length of time for discharge as it acts as a significant deterrent for clients getting into further debt.

Q20 Do you think the length of discharge and the length of DRO restrictions should be the same or different? Please provide reasoning for your response and indicate what an appropriate time for both is?

Advice NI would advocate that the official receiver should use their discretion when applying restrictions. The length of DRO restrictions should be assessed on individual circumstances, attitude, motivations and behaviour prior to applying for a DRO.

Q21 Do you think DROs impose any barriers on employment or self-employment? If yes, how could this be mitigated?

A potential barrier to self-employment would be the restriction in accessing funds to maintain or start up their business. Another issue we have noticed for a sole trader is if their bank account is frozen or closed down, as almost every business needs an open bank account to continue to trade. We would therefore like to see some further clarification and guidelines issued around bank accounts in a DRO, particularly if the account is in credit and not included in the DRO application.

Q22 Lenders/Credit rating agencies only: What credit policies do you have for someone who has gone through the DRO process?

Not applicable.

Q23 What impact have DROs had on the wellbeing of debtors – please provide evidence?

Generally, clients have found the process simple and relatively quick once they have decided that a DRO is the right option for them. Once the DRO application is submitted we do not generally follow up with clients, unless something changes in their circumstance. You can see from the Debt Action NI 2013/14 Annual report the difference clients feel before and after advice. You can read the full report here. Below is some general feedback we have received from our Debt Action NI clients:

“I had buried my head for so long that I was ill. Coming to speak to Debt Action NI has given me a new chance to get my life together. I think more people should know about the service and not be embarrassed as it really does make a difference.”

“I am extremely grateful for this service and for the help I received from Debt Action NI. The adviser was patient in listening to me explaining about my debt while being professional at their job in taking the necessary steps to help me get out of debt. I appreciate the help and assistance I received as this is a very much needed service. I would recommend this service to others that need it. Thank you for your help, hard work and dedication.”

“I was suicidal when I came to see Debt Action NI and could see no way out. Now I have my life back. Many thanks to everyone I will always be grateful.”

Q24 What would you consider an appropriate creditor petition level? Please provide evidence for this view, including any case study examples.

Advice NI believe that the creditor petition should raise to £3,000 as below this creditors could petition through the small claims court. A creditor being able to petition someone for bankruptcy for such a small amount of as £750 we believe is unfair, especially when there are other less formal procedures to pursue. 

Q25 Is there any other aspect of DROs or the creditor petition limit you would like to comment on? Please do so here.

Potentially the Insolvency Service could provide clearer guidelines on the appeals procedure. We had an issue where a client was turned down due to exceeding trigger figures and the Insolvency Service in NI were unclear what the appeal procedure steps were and who should be appealing the case – the intermediary or the competent authority.

Contact information on this consultation response:

Bob Stronge (Chief Executive)

Sinéad Campbell (Head of Money and Debt Services)

Kevin Higgins (Head of Policy and Research)

Advice NI

1 Rushfield Avenue

Belfast

BT7 3FP

Tel: 028 9064 5919

Fax: 028 9049 231

                                                                                                            Email:  bob@adviceni.net

                                                                                                       Email: sinead@adviceni.net

Email: kevin@adviceni.net

                                                                                                    Website: www.adviceni.net

Website: www.debtaction-ni.net