Consumer Debtors Research Articles

Causes of Early Failures in Individual Voluntary Arrangements

Consumer over-indebtedness is a topical and growing problem and Individual Voluntary Arrangements (IVA) are becoming the preferred solution for consumer debtors. When successfully completed, an IVA provides permanent debt relief and an opportunity for an individual to have a new start, but when these arrangements fail the individuals find themselves in a worse financial situation often with no alternative other than bankruptcy. The Insolvency Service (IS) only publishes very limited data on the procedure and there has been limited research into the process. This project has provided the first data from a debtor’s perspective. The findings on the initial advice process provide evidence of the importance of face-to-face meetings and the need for the regulators to reinforce rather than weaken best practice guidelines to improve quality and consistency. The breakdown in the relationship between Insolvency Practitioners (IPs) and creditors has caused a power struggle resulting in restrictive terms being forced on debtors, and finally the lack of an agreed approach for failed arrangements. The introduction of an agreed protocol in February 2008 will go some way to alleviating these problems. Further research is needed into the causes of IVA failure and follow-on projects are suggested. Due to the technical nature of this project a glossary of terms is set out on the next page.

Individual voluntary arrangements: A ‘fresh start’ for salaried consumer debtors in England and Wales

AbstractSince the mid‐1990s the number of consumer insolvencies in England and Wales has grown exponentially. The UK's Insolvency Act 1986 offers two formal responses to personal insolvency: bankruptcy and individual voluntary arrangements (‘IVAs’). While consumers have used both these debt relief mechanisms in increasing numbers in recent years, IVAs—regulated agreements between debtors and creditors facilitated by a licensed insolvency practitioner, usually taking the form of a 5‐year payment plan—grew faster than bankruptcies between 2003 and 2006. However, the level of new IVA approvals fell back in 2007 and the first half of 2008. This article charts the transformation of the IVA from a bankruptcy alternative originally designed for insolvent traders and professionals into a tool of consumer debt relief. It then seeks to explain both the stellar rise in IVA usage among consumer debtors and the subsequent stalling of IVA growth. The rise of consumer IVAs can be attributed largely to supply side changes in the market for debt resolution—in particular the emergence of volume providers commonly referred to as ‘IVA factories’—while a sustained backlash against the procedure and the providers instigated by institutional creditors demanding higher recoveries accounts for the subsequent decline in approvals. The article concludes by considering the near‐term prospects for consumer IVAs within the context of the increasingly complex UK debt resolution market. Copyright © 2009 John Wiley & Sons, Ltd.

Bankruptcy Courts Survey 2005 - A Pilot Study: Final Report - January 2006

BANKRUPTCY COURTS SURVEY 2005 In March 2005 the Centre for Insolvency Law and Policy (CILP), Kingston Law School, Kingston University, received £26,600 research funding to undertake two pilot studies. The funding was provided by the Insolvency Service, an executive agency of the Department of Trade and Industry. The first project, which was originally due to report in November 2005, is entitled the Bankruptcy Courts Survey 2005 (BCS 2005). It now reports in January 2006, to take into account the continued flow of questionnaire responses coming in to CILP. The project as proposed originally consisted of a pilot study questionnaire of three courts in England and Wales (Birmingham, Croydon, and Reading). This number was however expanded during the course of the research to include three further courts (Cardiff, Exeter, and Newcastle). This expansion was deemed necessary so as to gain a greater number of responses to the questionnaire thus giving greater statistical validity to the results. The BCS 2005 project received £12,000 of the research funding. Project Two, which will report in March 2006, received the remaining £14,600. This project is an examination of the concept of phoenixism in insolvency and is being conducted by Fiona Tolmie, director of CILP. REPORT SUMMARY The Main Conclusions of the Bankruptcy Court Survey 2005 (BCS 2005) are: Debtor associated: - The main cause of is bankrupt acknowledged credit misuse, followed by failure. - Males are the majority users of the regime. - There is no definitive age range for the typical bankrupt. - Debtors present the majority of petitions. - The vast majority of bankrupts are not homeowners prior to Bankruptcy does not affect employment. - Knowledge of the Enterprise Act 2002 provisions and their effects is low amongst bankrupts. - The majority of bankrupts feel morally at fault for their debt problems. - A large majority of bankrupts did not know what level of indebtedness they were being released from. Creditor associated: - Bankrupts experience immense difficulties in obtaining bank accounts post discharge, which inhibits them from rehabilitation into the credit world. - The non-monetary effects of are voluminous, but primarily feature dissatisfaction with lenders. Procedure associated: - Informal voluntary arrangements and individual voluntary arrangements are close second choice solutions for over-indebted individuals. - Alternative routes to are explored prior to the route being pursued. - Word of mouth and voluntary sector advice are the main information conduits for insolvency advice. - Bankruptcy as an experience is overwhelmingly perceived as negative and stigmatising by bankrupts. - Bankrupts sum up the process as being ultimately an efficient system. - The one year maximum period before automatic discharge is deemed sufficient by bankrupts. Profession/Advice associated: - Communication and advice from Trustees in Bankruptcy is good according to bankrupts. - Communication and advice from the Official Receiver is overwhelmingly good according to bankrupts. - Bankruptcy jurisdiction within the County Courts is efficient and the supporting infrastructure is well maintained. - On the whole lawyers are not involved in the process in terms of advice; the Citizens Advice Bureau is the main provider of insolvency advice. Pilot Study Preliminary Recommendations The main recommendations of the BCS 2005 are: - Consider the division of into a two-tier system differentiating between entrepreneurially derived debt and consumer derived debt, perhaps under the headings of business bankruptcy and personal bankruptcy. - Formulate and enact a system of debtor and creditor education. - In light of the recent dramatic growth in consumer debt levels reappraise the conduct of consumer debtors, but in particular lending institutions, focusing on the creditor's responsibility and conduct regarding the consumer debtor's personal over-indebtedness. - Whilst considering the division of the procedure between business bankruptcy and personal bankruptcy also consider eradicating the term bankruptcy for non-culpable consumer debt cases. - It is further recommended that the BCS 2005 pilot study be expanded from its 6 court sample to a full study that encompasses 30 of the 136 courts in England and Wales to give a better impression of the treatment and experience of the court user.

Accessing Insolvent Consumer Debtors, Challenges and Strategies for Empirical Research

Insolvency law policy is best informed by a comprehensive understanding of the policy objectives of particular measures and the practical outcomes of particular choices. Yet there continues to be a lack of empirical research in Canada in respect of consumer insolvency, its underlying causes and its outcomes. Debtors' or bankrupts' experience with the insolvency system is almost impossible to gauge with the data now collected. Research funding for legal, economic and sociological scholars in the insolvency area continues to be very limited. This paper examines current challenges and strategies for empirical research on consumer insolvency in Canada. It explores options for researchers to access insolvent debtors that have utilized the procedures under the Bankruptcy and Insolvency Act (BIA), including how data could be more meaningfully collected and analyzed. This study was funded by the Canadian Office of the Superintendent of Bankruptcy (OSB) which has administrative oversight of the Bankruptcy and Insolvency Act. A working hypothesis of the project was that there is not yet adequate empirical research into consumer insolvency in Canada, such that our policy decision making is fully grounded in experience and informed decisions. The study offers an assessment of effective research methodology for accessing insolvent individuals, which may enhance future research in the area of consumer insolvency. It makes a number of recommendations for enhancing data collection, including that there should be funding available for broad based multidisciplinary longitudinal empirical research and for qualitative and quantitative research on targeted topics. Such research must respect the privacy and dignity of consumer debtors while allowing accurate collection and analysis of data. Part II briefly sets out the methodology for this report. Part III examines the scholarly literature, making a number of observations in respect of methodologies utilized in previous studies and how they can inform Canadian empirical study of consumer insolvency. Part IV analyses survey and interview responses from legal, medical, business and sociology scholars, and from insolvency professionals, in terms of their observations in respect of enhancing data collection. Part V examines current ethics considerations in research under the Canadian university system. Part VI concludes with several immediate recommendations for potential future research initiatives. It is hoped that this paper is the beginning of a dialogue in Canada in respect of creating a broad-based, accurate system of data collection and analysis, with a view to enhancing consumer insolvency law.

Chronic consumer debtors: the need for specific intervention

AbstractMany studies of consumer debtors have identified risk factors associated with chronic consumer debt. Chronic consumer debtors exist in an environment of ongoing efforts to survive financially and meet their debt commitments. Despite otherwise favourable economic conditions for the community at large such as low interest rates and low levels of unemployment, the chronic consumer debtor remains continuously at peril of overcommitment. An analysis of financial counselling interviews in New South Wales (the largest state in Australia) has been used to identify the group that the authors believe to be most at risk of chronic consumer debt in Australia. Other independent studies are provided to support the choice of the identified group. The situation for chronic consumer debtors is contrasted to the situation for acute cases. While financial literacy and support programmes can be provided to the community, the ability to target programmes towards a specifically identifiable group concentrates activities on measures aimed to alleviate the distress caused by ongoing financial hardship for one particular consumer group. The challenge of reducing chronic consumer debt has the potential to raise awareness and understanding of risk factors for consumer debtors generally. Thus, concentrated efforts towards alleviating chronic consumer debt may lead to a reduction in consumer financial overcommitment.

Consumer bankruptcy in Utah (USA): who files and why?

AbstractThis study examined consumer debtors who filed for bankruptcy and their reasons for filing in Utah, the U.S. state that ranked first in household filing rate in 2002–2004 and consistently ranks in the top ten of the 50 states. The purpose of the study was to determine the demographic characteristics of debtors and reasons for filing. Data were collected during 2004–2005 via survey from 508 debtors. The debtors reported employment problems, medical expenses, divorce or other family problems, as well as trouble managing their finances and overuse of credit cards. More than half of the debtors owed medical providers. Debtors were more likely to report a reduction in income than job loss. Self‐employed persons were over represented. Respondent debtors are less educated, less likely to be married and less likely to own a home compared with Utahns and other Americans. Contrary to expectations, debtor households were smaller than the state average, which may be due to the young age of debtors. Results suggest that in order to reduce the bankruptcy rate in Utah, consumer educators should target renters, adults with less than a college education, divorcing persons and small business owners. Utah's mandate for a personal finance graduation requirement should be implemented early in the secondary school curriculum.

Bankrupt Profits: The Credit Industry's Business Model for Postbankruptcy Lending

Consumer credit and consumer bankruptcy filings have grown rapidly over the last two decades, and several researchers have attempted to understand the relationship between these two intertwined features of the modern American economy. Teasing out causation is almost impossible, as consumer advocates lay blame on the industry and the industry responds by citing the same data to show consumer misbehavior. Using a novel vantage point, this analysis examines what the credit industry's behavior toward recently bankrupt families reveals about its internal profit models and the likely causes of consumer bankruptcy. The empirical evidence on postbankruptcy credit solicitation belies the industry's characterizations of bankrupt families as opportunistic or strategic actors. Original data from longitudinal interviews with consumer debtors show that many lenders target recent bankrupts, sending these families repeated offers for unsecured and secured loans. The modern credit industry sees bankrupt families as lucrative targets for high-yield lending, a reality that has important implications for developing optimal consumer credit policy and bankruptcy law.

Consumer credit card use: The roles of creditor disclosure and anticipated emotion.

In response to federal legislative reform aimed, in part, at reducing consumer bankruptcy filings, the authors conducted 2 experiments examining the role of affect in purchasing behavior. In Experiment 1, they examined consumer debtors, and in Experiment 2, they examined nondebtors. In both experiments, they investigated purchasing decisions made during a simulated online shopping trip, with some participants receiving standard disclosures of interest rates and money owed and with other participants receiving information under the new enhanced disclosure regulations. Results demonstrated support for the influence of anticipated affect in credit card use among both debtors and nondebtors and indicated that anticipated emotion may moderate the impact of the enhanced disclosure regulations.

Consumer Bankruptcy Law Reform in Scotland, England and Wales

As is the case in several other jurisdictions, policymakers in the United Kingdom are seeking to adjust the bankruptcy laws to reflect ever increasing usage of the bankruptcy system by consumer debtors. This paper sketches the existing and emerging consumer bankruptcy systems in Scotland, England and Wales and seeks to assess the fitness for purpose of those systems.

The Position of Family Sureties within the Framework of Protection for Consumer Debtors in European Union Member States

Different approaches to the protection of sureties are currently taken in the European Union member states. A consideration of these different levels of protection requires an examination of social welfare law, contract law and bankruptcy law. This consideration is important because different approaches to surety protection represent potential barriers to the integration of the credit market, as envisaged under the draft Directive on consumer credit. The draft Directive may eliminate some of these barriers, but not others. In addition the Directive also has the potential to bring other, negative, consequences. If the Directive is successful it may have a significant impact on the level of over-indebtedness among consumers and, consequently, there will be a need to monitor the adequacy of consumer bankruptcy laws in the member states, in particular in light of any changes to the social welfare systems in operation.

Fresh start procedures for consumer debtors in South African bankruptcy law

Fresh start procedures for consumer debtors in South African bankruptcy law

Counselling Consumer Debtors under Canada's Bankruptcy and Insolvency Act

Counselling Consumer Debtors under Canada's Bankruptcy and Insolvency Act

Changing Directions in Consumer Bankruptcy Law and Practice in Europe and USA

The consumer bankruptcy or, rather, consumer debt adjustment, is a fairly recent phenomenon in continental Europe. In the nineties, a number of European countries introduced judicial institutions in order to alleviate an excessive debt burden carried by consumer debtors. In addition to the court proceedings, the European jurisdictions often provide the debtor with debt counselling services, supervision, and payment requirements. In the United States, on the other hand, discharge of debt has been an established principle of bankruptcy law since the late 19th century, and bankruptcy is frequently used by consumer debtors. However, in the US, as well as in Canada, debtors are increasingly encouraged to opt for a payment plan. There seems to be a certain convergent trend between the two different legal cultures. Paradoxically, at the same time scholars have pointed out that the variance in local cultures seems to be a main factor in explanations of how debtors choose either a direct discharge or a payment plan. This finding gives us reason to consider the interplay of counselling and other pre-trial measures and its effect upon the rights and duties of debtors.

Bill Collectors and Consumers: A Troublesome Exchange Relationship

The author examines the interface between bill collectors and consumers through the use of in-depth interviews. One important result is a profile of both bill collectors and consumer debtors that includes an understanding of their beliefs and attitudes toward as well as reactions to each other. To develop this profile, details of the debt collection process, including the activities of bill collectors, the reactions of consumers, and their resulting relationship, are provided. The author closes with public policy implications, further research opportunities, and broader implications for marketers.