Group makes call for reform of insolvency system.
The insolvency system must be changed to help people struggling with small debts reach agreements with their creditors, a working group has said.
The Government-backed Insolvency Working Party is calling for Individual Voluntary Arrangements (IVAs) to be simplified so that they are cheaper to administer and more attractive to creditors.
Bev Budsworth, of Budsworth & Co and a member of the group, said people who owed less than pounds 25,000 were often forced to go bankrupt because creditors failed to agree to IVAs because the costs of the schemes were high in relation to the amount of money they could expect to get back.
IVAs, which were introduced in the Insolvency Act in 1986 as an alternative to bankruptcy, are aimed at people with some form of income or assets and who can repay some of the money they owe.
Under the arrangements the individual, with the help of an insolvency practitioner, puts forward a proposal to creditors to repay some of their debt, usually in regular instalments over a five-year period, in exchange for the rest of it being written off.
The group is calling for the current system to be kept in place for traders and people with more complex cases, but it wants to see a new, low-cost simple IVA (SIVA) introduced for people with debts of less than pounds 75,000.
It said SIVA should operate as a two-tier system, enabling people with debts of less than pounds 25,000 or pounds 30,000 to enter an SIVA 1 without creditors voting on the proposal, as long as they were being offered a better return than bankruptcy and the person was paying the maximum they could afford.
It said this, combined with a number of other simplifications, would reduce the cost of running the scheme, and therefore offer a better return to creditors than a traditional IVA would.
For people with debts between pounds 25,000/pounds 30,000 and pounds 75,000 the SIVA 2 would allow creditors to vote on whether or not to accept the proposal, but they would not be able to change its terms.
The scheme would go ahead if the majority of creditors supported it, rather than 75% as is currently the case.
But the group said to ensure the integrity of the scheme, people whose conduct had been irresponsible, reckless or dishonest would be barred from taking out an IVA or SIVA, and creditors would still have the right to appeal to the courts.
It also put forward a number of proposals to improve the efficiency of IVAs, such as reducing the role of the court, removing the need for creditors to have a physical meeting and allowing the supervisor some discretion to vary the arrangement.
The group also called for the schemes to have more publicity so that more people knew about them.