Unlocking a new start.

Why insolvency alone cannot provide a new start for people in severe financial crisis.

Each year in the UK, 130,000 people trapped in inescapable debt are offered the chance to start afresh through an insolvency solution. This brings powerful release from the financial and personal strains that crisis debt places on individuals and families. Yet, Debt Advisors are increasingly seeing clients in persistent poverty with broken budgets where insolvency alone cannot provide a complete new start.

Unlocking a new start is informed by analysis of the financial circumstances of 1,953 households being supported by the Insolvency team at Christians Against Poverty (CAP) and four focus groups with CAP’s Debt Coaches and Advisors.

The research reveals five financial constraints that continue to hold CAP clients back post-insolvency:

1. Broken budgets

39% of CAP clients on an insolvency route have less than half the amount needed for a sustainable budget (page 4)

2. Lacking financial resilience

It would take the average CAP client on an insolvency route over three years to save £750 (page 5)

3. Continuing deductions

An average CAP client is estimated to lose £126 in erroneous deductions post-insolvency (page 5)

4. Still being or feeling indebted

1 in 3 CAP clients have an excluded debt they have to repay post-insolvency (page 6)

5. Losing access to products and services

Clients bank accounts can be closed and credit ratings impacted.

It is a package of holistic support that truly makes the difference in helping people move forward, break social exclusion and recover from the whole-life effects of problem debt. CAP’s Debt Advisors view insolvency solutions as a fantastic tool and a vital part of achieving positive client outcomes.

To unlock a new start for more people post-insolvency, we also make the following recommendations:

For Government

Reform housing policies so low-income households are not required to use ‘subsistence benefits’ to cover housing benefit shortfalls.
Department of Work and Pensions (DWP) and HM Revenue & Customers (HMRC) to ensure benefit and Tax Credit deductions stop immediately after receiving notification that an insolvency has been granted.

For creditors

Guarantee banking facilities will be offered to people post-insolvency, including in the twelve-month discharge period, and develop processes to transition existing accounts to a new basic account if needed.

For the Insolvency Service

Bring Debt Relief Order (DRO) rules on omitted debts in line with bankruptcy, so all debts within the £20,000 limit incurred before the application are covered, including historical benefits and Tax Credit overpayments.