Some debtors are being given the wrong advice on their insolvency options, it has been claimed.
Firms have been warned by the Office of Fair Trading (OFT) to stop misleading people who become insolvent due to debt.
The body has announced that 12 organisations have wrongly been sending out unsolicited mailings, advising people that they should discontinue their individual voluntary arrangements (IVAs) and go to court to file for bankruptcy instead. According to the OFT, making such a move could lead to the IVA holders to miss out financially.
This is because declaring bankruptcy after taking out an IVA - which works as an agreement for insolvent people to pay back a proportion of their debts over a pre-agreed period - costs more, due to the initial costs of setting up an arrangement. Becoming bankrupt is also not preferable to taking out an IVA in many cases, as authorities take much closer control over the debtor's personal finances.
Ray Watson of the OFT commented: "We expect any advice and/or information given to debtors to be in their best interests and it should include a full explanation of the implications of offers or advice."
The OFT also said that the 12 firms which have issued the unsolicited advice would not be named at this stage.
