Indebted individuals could be being denied good opportunities to resolve their debt issues, the government has warned in an extraordinary stand-off with lenders.

The government's Individual Voluntary Arrangement regime looked as if it was lurching towards crisis this week, as the Debt Resolution Forum (DRF), a body representing IVA providers, added its voice to the warnings.

Lenders are currently seeking to get a better deal out of IVAs. Capital One has sought to put a cap on IVA fees paid to insolvency practitioners, as has TIX, working for First Direct, HBOS, HSBC, M&S Money and RBS.

The showdown between the banks and the practitioners has led to claims from government and the insolvency industry that the lenders' attitude is damaging outcomes for indebted individuals.

The Insolvency Service said in a letter to banks this week that the hardball attitude of lenders towards IVA fees charged by insolvency practitioners could deny people the opportunity to resolve their debt crisis.

'The long-term effect could be to push more people into bankruptcy, where creditors would get an even lower return,' said the Insolvency Service.

DRF chairman Chris Holmes said: 'It's apparent that many important creditors have decided to frustrate this initiative with artificial barriers and hurdles that are denying debtors a sensible route out of debt.'

Holmes also criticised creditors' reasoning for their actions: '[We] believes it is a fiction that the latest unilateral actions taken by Capital One and TIX are just designed to increase returns to creditors by driving down IVA fees. This is particularly so in the case of TIX, where that firm's fees appear likely to add around £1,000 to creditors' costs in the average case.'

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