adviceDebtNews

Make sure your debt solution doesn’t leave you worse off

Do you have unmanageable debts? Are you looking for a solution? It’s vital to get impartial advice to make sure you’re not plunged deeper into debt. 

Citizens Advice is calling on the Government and regulators to take urgent action to protect people in debt from being pulled into inappropriate debt solutions. 

Graphic showing the logo of Citizens Advice Hull & East Riding and a silhouette of an adviser talking to a client. Text reads: Make sure you get the right debt advice. One in five people are being put forward for Individual Voluntary Arrangements when shorter, cheaper routes out of debt are available.

A new report by the national people’s champion has exposed widespread issues with people with unmanageable debts being given poor advice and entered into Individual Voluntary Arrangements (IVAs), a type of fee-charging solution which can be risky with high fees. 

While in some circumstances an IVA can be appropriate, for a long time we have been seeing issues with people being entered into them when they are not the most suitable debt solution for their circumstances, as a result of poor advice and poor selling practices by IVA firms and lead generators who fail to tell people about alternative solutions. 

This has a huge impact – it risks plunging people into further hardship, and can leave them in debt longer where an alternative solution like a Debt Relief Order (DRO) was available. 

It’s free to make a DRO application and you don’t have to make payments towards most types of debt included in your DRO and your creditors can’t force you to pay off the debts. A DRO usually lasts a year unless your situation improves. When it ends, most of your debts will be written off. 

Other debt solutions available in England and Wales include a Debt Management Plan (DMP) or bankruptcy, but we found that 14% of people with an IVA in the last five years were not told about any other solution. 

Failed IVAs cost each person £849

IVAs are risky remedies that attach high fees, and where people are unable to keep up with repayments they can fail leaving people in a worse position than they started. Failed IVAs cost people in debt at least £48.8 million over a five-year period in fees alone, with each person whose IVA failed losing on average £849. 

Almost one in four people in an IVA went without everyday essentials, like food, energy, and toiletries, due to unaffordable arrangements. One in three (31%) people in an IVA told Citizens Advice their IVA has had a negative impact on their debt levels. 

More than one in five people in an IVA would have met the eligibility for a Debt Relief Order, which would have offered a shorter and cheaper route out of debt. 

These issues are driven by people not being given high-quality debt advice covering all solutions, a failure of supervision to ensure compliance, and commercial incentives which create inherent conflicts of interest in this market. In addition, a messy regulatory regime results in inconsistent advice standards. 

The Citizens Advice report reveals that: 

  • People are frequently being put forward for unaffordable IVAs 
  • People are not being told about alternative debt solutions; and 
  • People are regularly not being told key product information.  

Citizens Advice is calling on the government and regulators to take urgent action to fix this broken market, and protect people from being driven into inappropriate debt solutions. They must work together to drive up the quality of advice, strengthen supervision and build an insolvency approach fit for the future. 

Get help and advice in Hull & East Riding

For 85 years, Citizens Advice – the people’s champion – has been helping to shape a society that’s fairer for everyone. Our network of independent charities offers confidential and impartial advice online, over the phone, and in person – for free.  

In 2023-24, Citizens Advice Hull & East Riding helped clients with more than 93,000 issues including debt and benefits. We help people resolve their legal, money, and other problems by providing information, advice, casework, and representation. 

You can get free advice and support by attending a drop-in session at our office in Hull (if you live in the Hull City Council area) or one of our offices in Beverley, Bridlington or Goole (if you live in the East Riding of Yorkshire Council area). 

Alternatively, you can call 0808 278 7981 or request help through our online form