Insolvency Service figures hide the true extent of the debt problem, says Laurence Weeks, chair of the eastern region of R3, Association of Business Recovery Professionals, and partner at Cambridge law firm Taylor Vinters
DESPITE the drop in personal insolvency during 2007 and a marginal rise of 1.7% during the first quarter of 2008, debt problems continue to escalate ahead of indications in England and Wales.

While full year figures for 2007, released recently by the Insolvency Service, register a drop of 0.6% on the 2006 figures, if these statistics are analysed closely and compared with market activity, it becomes apparent they are not a true indication of the level of debt in the UK.

In fact, the real number of individuals across the country who are unable to pay their debts could be as much as three times higher than the Insolvency Service figures show. This is because of the fact that Debt Management Plans (DMPs) are not registered in the figures.

For many years, the number of DMPs has exceeded that of bankruptcies and Individual Voluntary Arrangements (IVAs) combined. Yet they are not recorded in the above statistics because they are viewed as being a non-statutory solution to an individual's debt problems.

Unfortunately, DMPs can become a form of debt slavery through which there is no guaranteed write-off of any debt, no interest reduction nor debt forgiveness. At R3, we have evidenced such plans running for decades, compared to an IVA's typically five-year term.

It is absolutely imperative the Insolvency Service statistics start to reflect the true nature of our national indebtedness and they alert the government to the immediacy of the need for further legislation and resources to deal with this escalating problem.

However, DMPs - or the lack of them - are not the only element distorting the Insolvency Service figures. The link between the number of IVAs and the number of individuals in severe financial difficulty has been affected by last year's dispute between creditors and IVA providers. This was caused, in part, by voting agents becoming much more particular about their expectations from IVA proposals.

The result of the disagreements meant that many people were unable to get access to IVAs during 2007 and debtors were forced into other options, such as the aforementioned Debt Management Plans.

Thankfully, the dispute has now been remedied through a new protocol signed up to by the British Bankers' Association, the Insolvency Service and major creditors.

By specifying exactly what is expected from IVA proposals, the protocol should pave the way for greater understanding and confidence among debtors and it should also afford us a far truer reflection of the state of this country's debt in 2008.