The Principles of Ethical Debt Advice

Where someone is unable to meet their financial commitments but has assets with a total realisable value in excess of their liabilities, then they should bear the cost of the debt solution (this means that if the debt can be restructured with lower monthly repayments over a longer period of time, such as remortgaging where equity is available, then it is fair and reasonable to expect them to do so).

Where the criteria for a Debt Relief Order or an Administration Order is met, the appropriate solution should be recommended.

Where the aforementioned solutions are not appropriate for the client’s circumstances and where the projected repayment period is less than five years (assuming 100% creditor cooperation) then a creditor funded Debt Management Plan (DMP), which the charity believes is always more appropriate than a debtor funded DMP, is the appropriate solution (a Debt Arrangement Scheme (DAS) if habitually resident in Scotland).

Our belief that informal arrangements should not be recommended where the projected repayment period exceeds five years is based on the following:

• Credit agreements do not typically exceed five years in length.  As there has often been an unanticipated (by both parties) life event preceding the financial impairment and in some cases an inadequate appraisal of credit suitability, we don’t believe the debtor should bear the full responsibility with respect to length of payback.
• Evidence shows that the majority of informal arrangements typically do not last more than five years.
• There is already a general consensus amongst insolvency professionals that five years to pay back what an individual can afford is reasonable and is reflected in the typical length of an Individual Voluntary Arrangement (IVA).

The length of time someone should be expected to contribute to debt mitigation is clearly a key issue which requires sector-wide consensus, with due consideration being given to the many and wide-ranging aims of intervention (restorative, rehabilitative, preventative, educative and so on).

If someone is unable to pay back their debts in full in less than five years, but is able to offer their creditors an acceptable return then an IVA will be considered (Trust Deed in Scotland if the debt cannot be paid back within four years via a Debt Arrangement Scheme).

Bankruptcy will only be excluded as an option where debtor status or attitude is a determining factor.