Insolvency practitioners are turning away people struggling with debts, as the recent cut in fees would cause them to advise at a loss.

A growing number of practitioners are rejecting debtors who owe less than £20,000 to £30,000 because they are not paid enough to carry out individual voluntary arrangements.

David Kerr, chief executive of the Insolvency Practitioners Association, said this posed a serious problem for debtors who could find themselves using debt procedures, such as bankruptcy, which are not appropriate.

'Debtors are being denied the opportunity to enter into an IVA even if it is the right solution, because of fees’ Kerr said.

He felt the fall out from this meant that firms would stop advising on IVAs.

‘In some cases the IP will stop doing IVA work if they attract cases in the lower end of the scale. That is unfortunate, not least because it reduces consumer choice,’ he said.

Fees for IPs were cut when creditors changed the formula for payment from a percentage of returned funds to an equation based on taking the first four or five instalments of renegotiated debt.

Terry Balfour, director for IVA.com, the information site, said small IVAs were being turned away.
‘The majority of IVA’s are at the lower end of the scale so this is affecting a lot of them,’ he added.