462.Many organisations currently offer advice and assistance to debtors. This can include negotiation with creditors to agree an acceptable schedule of repayments and drawing up plans to help debtors manage their finances and make those repayments. It is estimated that over 25,000 such debt repayment plans were arranged in 2004 and there are currently around 70,000 active plans.
463.Such schemes depend on the voluntary participation of the debtor and creditors, and operate without any form of regulation. There is currently no power to compel creditors to adhere to the terms of a debt repayment plan (that is to accept the planned repayments without taking enforcement action). Therefore a single uncooperative creditor can effectively block the creation of a repayment plan that would benefit the debtor and all the other creditors in the long run. Nor is there any power to compose debts that cannot be repaid within a reasonable period as an incentive for the debtor to maintain the required repayments.
464.Measures in Part 5 of the Act make it clear that business and secured debts cannot be included in these schemes. The measures also enable scheme operators to exercise powers to compel creditor participation, by preventing enforcement action, and to write off a proportion of the debts where a debtor complies with a DRP but simply cannot repay the full amount in a reasonable timescale. Additionally, the measures give the Lord Chancellor power to prescribe in regulations the circumstances in and the extent to which these powers may be exercised. For example, regulations might define the minimum and total repayments for which plans must provide, thereby defining the maximum proportion of the total debts that could be written off. Within these limits, individual schemes could make greater or lesser use of such powers.
465.The Act also provides creditors with a right of appeal to a county court against the making, their inclusion and terms of a DRP.
466.Before making regulations to bring this Chapter into effect, the Government intends to undertake further research into existing statutory and non-statutory schemes for assisting the over-indebted and those in multiple debt situations (including the working of the reformed AO scheme). This would inform detailed proposals that would then be subject to a full public consultation exercise and regulatory impact assessment to confirm their benefits and cost effectiveness.
467.The Choice of Paths consultation sought views on whether it would be desirable in principle for a scheme similar to the court-based AO scheme to be operated in the private and voluntary sectors. A majority of respondents thought that a non-court scheme could offer advantages over the AO scheme. The paper did not discuss the details of such a scheme. The provisions in this Chapter are intended to take powers to give effect to such a scheme or schemes through regulations, subject to further consultation on the details.
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