Interview with a debt expert

With rising consumer debt fast becoming a major issue, Simple Debt Solutions' senior debt expert John Bluer talks about the current situation as he sees it.

Interviewer: Let’s start by talking about Simple Debt Solutions – how did the company come to be formed?John Bluer: Well it all started with our parent company Leonard Curtis formally, DTE. We were representing businesses such as Citi Bank and other credit card companies who were receiving poor quality personal insolvency proposals. There was clearly a demand for high quality personal insolvency advice and that this type of business would be well received by lenders and consumers alike. So we created a new business and called it Simple Debt Solutions' and we’ve gone from strength to strength ever since.

Interviewer: And was the business well received by lenders for example?John Bluer: Yes, was then and still is now. I think that when they see the Simple Debt Solutions' brand, creditors know we will always look to put forward a favourable deal and that the client knows their offer will be put forward professionally. It works for everyone.

Interviewer: In this type of business you hear lots of horror stories of clients being badly advised or being given false promises by poorly trained staff. How seriously do you take staff training and what sort of qualifications does the Simple Debt Solutions' team have?John Bluer: We take it very, very seriously and we spend a lot of time training staff and testing their skills. We are Licensed Insolvency Practitioners. All our staff are highly qualified and experienced, and the majority are educated to degree level. They are offered CPI, which is the Certificate of Proficiency in Insolvency and they can go on from there to become an Insolvency Practitioner. We pride ourselves on being the best in the industry.

Interviewer: The personal insolvency market has mushroomed over the last few years with lots of new entrants. As a result, you’ve probably come across a lot of companies with much less experienced staff – how detrimental can that be to a consumer?John Bluer: Well, we see CV’s from a lot of people who’ve worked for so called competitors and it’s a shock to realise that the majority of them have only worked for less than 6 months in the industry and they are regularly giving advice. We regularly get clients who come to Simple Debt Solutions' when they’ve had a bad experience with another organisation and the advice they have been provided is quite often staggeringly poor and wrong.

Interviewer: So give me an example of this poor advice.John Bluer: We hear horror stories such as people who have been advised that they can't enter into an IVA because they own their own house. This is just incorrect. Fundamentally, an IVA is simple, you pledge what you can afford and put that deal to the creditors. You can’t offer any more than what you’ve got. Many people come to us saying that the advice they have previously been given has been packaged like a product rather than debt advice. It is important that advice is given properly. If bankruptcy is the right solution we will advise that. However people are often reluctant to declare bankruptcy and would rather repay as much as they can.

Interviewer: While we’re talking about IVA’s I’d heard that certain professions cannot do an IVA – Police Officers for example. Is that true? John Bluer: No. Sometimes people in the Police are under the impression that they cannot propose an IVA due to employment contract limitations but quite honestly the only people who would find it difficult to propose an IVA are, say Financial Advisors – even Solicitors, Accountants and Doctors can propose IVA’s. Employers are coming to the conclusion that some employment contract stipulations are onerous and there is no need to consider replacing a perfectly good employee just because they have mismanaged their finances. Employers are taking into consideration the responsible steps their staff are taking to avoid declaring themselves bankrupt – and obviously an IVA is a private deal between themselves and the creditors so any reputational issues are resolved.

Interviewer: I’d read recently that some of the more unscrupulous IVA companies are charging for advice. Have you come across this?John Bluer: Oh yes. Regularly. But we have a golden rule here at Simple Debt Solutions' - You never pay for debt advice. It dismays me that some companies charge for debt advice. It gives the industry a bad name and some clients expect to have to pay for advice because that’s what they’ve been used to. For example, recently I was offered £3000 to write a letter when in fact to charge wasn't appropriate.

Some IVA companies will charge upfront before proceeding to an actual IVA and will require a couple of monthly payments at the amount which has been deemed to be affordable to the debtor. Don’t do it! Do not pay for debt advice! Very often if the IVA does not go forward at the creditors' meeting, the debtor will not get that money back and the company will keep the payments as a ‘fee’.

Interviewer: What is the state of the consumer debt market now compared with last summer?John Bluer: There has been a major shift, fundamentally because of the credit crunch. In the past some homeowners have taken the view that as long as there’s equity in their house they can run up a certain amount of unsecured debt on credit cards and later remortgage, if need be. The credit crunch has put paid to that because much of the easy remortgage money is now no longer available. House prices are now coming down – mortgage products have been withdrawn – people no longer have the remortgage option. You may have debts of £20,000 with nowhere to go because their equity has diminished. It is these people who need help to change their spending patterns and their mindsets to deal with debt once and for all.

Interviewer: Have you seen the volumes of enquiries increase?John Bluer: Yes, a huge increase. Many people’s spending habits are bad. A lot of credit was thrown at people, who’ve taken it, spent it, but now can’t remortgage or consolidate and are backed into a corner. Before the credit crunch we knew there were a lot of people in debt but we didn’t know where the bodies lay (so to speak) – now we know because they’re the ones who can’t remortgage, are going into negative equity and still have £40K of debt to deal with.

Interviewer: Are you surprised or unsurprised about some of the stories you hear?John Bluer: We’re never judgemental when someone comes to us with a problem and nothing they have to say would really surprise us but I must say, the level of lending that has been available to people who could never had afforded to repay it is astonishing. And it’s going to get worse. Many people are still trying to firefight their creditors to try to pay what they can. They’ve tried to do a remortgage and the lenders have looked at the case and refused. There is a lot of work in the pipeline for the mortgage brokers but they can’t do the remortgages because the lenders won’t provide funding at previous levels. Consequently the consumer is left with unaffordable debt.

Interviewer: How prepared are people in general when they make that call to you – are they usually in panic mode? John Bluer: Well some are, but we work hard to put them at ease and to simplify things for them. We take a measured, holistic approach to debt advice and formulate a plan that is affordable for the client and a good deal for the creditors. Any deal has to have longevity and has to succeed.

A lot of creditors see that what we put forward is sensible and so we like to think that the Simple Debt Solutions' brand does have some leverage. But what we want to do for the individual is ensure that they don’t come back to see us again once this debt problem has been resolved.

We spend time talking with clients about changing their spending habits and giving them advice on how to manage their finances. A lot of people do not realise how much stress they are under so when the right procedure is put in place for them there is a great sense of relief.

Interviewer: Yes, I noticed there was a lot of “thank you” cards on your website with very heartfelt words.John Bluer: Yes. We like feedback for our own training purposes and it’s nice to know that you’re doing a good job and are helping people. We also refer people to www.iva.com which is an independent website where they can submit a review of the service we gave them and people say a lot of nice things about us on there. But it’s worth mentioning that an IVA is only the right choice for 10% of people we give debt advice to. Some people just need guidance and we are always free to help.

Interviewer: Can you outline the IVA process? John Bluer: Yes, first of all we’ll have an initial conversation. This provides us with all the relevant information such as who our client owes money to, amounts, details of assets and monthly income and expenditure. We will also obtain some background of how they got into debt, such as overspending, redundancy, illness or divorce.

We then draft an IVA proposal with the client. The draft then goes to the client with an instruction letter which allows us to formally act on their behalf.

The client reviews the documentation, ensuring that everything is correct. They then sign it and send it back to us. We then file this at the local county court. We then circulate the proposal to creditors, giving statutory notice to creditors to call a creditors meeting. The creditors meeting is then set and a vote is taken at the meeting to decide if the IVA proposal is accepted.

Interviewer: Can you explain what the creditors meeting is like? John Bluer: They get the statutory notice, the proposal, a notice of the meeting plus a proxy (postal vote) form and proof of debt form. The proof of debt form is used to stipulate exactly how much is being claimed, by what source (ie credit card or loan ) and the proxy form is used at the meeting as a postal vote. The debtor (our client) has to be available on the end of a telephone.

A lot of people think that all the credit companies and claimants show up for the creditors meeting but this is not the case. They just submit their vote in time for the agreed meeting time by post or fax.

Interviewer: So there isn’t physically a creditors meeting – they vote by proxy? John Bluer: Well, you have to provide the option of a formal creditors meeting so that if creditors want to attend they can. But we have been dealing with IVA’s for over 10 years and never had anyone attend.

Interviewer: Is there a typical type of person in your experience who gets into debt? John Bluer: There is no typical type of person who gets into debt – I have advised people from every walk of life. I’ve advised pop stars, west end stage stars, accountants, solicitors, doctors, surgeons, dentists, plumbers, plasterers, people in the building trade, people who work for themselves – there is no specific walk of life.

Virtually everybody has some kind of debt whether manageable or unmanageable. The problems that we address are the people who have unmanageable debt. Debt isn’t a bad thing if used properly. A lot of it boils down to human nature. People want to spend and there is a culture of “have everything now”. But at some point you have to pay it back.

Interviewer: Do you think the debt situation is going to get worse? John Bluer: This situation is going to get a lot worse. Credit card companies are putting people into hardship programmes for perhaps a year. Sometimes the credit card or loan company will provide a hiatus period and will maybe entice the customer into a debt management programme and freeze the interest for a year.

Whilst the official figures only show how many people are in formal insolvency procedures there will be at least five times that number of people who are in actual debt management plans and then five times that number of people who are suffering and can’t pay their mortgages any more. It sounds bleak but people have to be realistic. In my opinion there is a lot of people with unmanageable debt.

Interviewer: It’s almost like the iceberg – we’re only seeing a small part of the problem? John Bluer: Yes. You only see a little amount of this debt through formal figures but it’s the tip of the iceberg.

Interviewer: Can we just explore the difference between an IVA and a Debt Management Plan? John Bluer: An IVA is a formal contract put together with the assistance of the licenced insolvency practitioner.

A debt management plan is an offer to creditors of what an individual can afford. Typically, the offer is put to creditors by a debt manager on behalf of a client and managed month on month.

Fundamentally, the difference is one is formal and binding on creditors with a rigid plan and the other isn’t. With an IVA you know how long it’s going to last, what you’re going to achieve and it’s an ordered way of which you’re in control.