Industry leader and member of the R3 Insolvency Committee says dispelling misconceptions about insolvency practitioners can help improve the mental health of people struggling with debt.
Edinburgh, UK, Aug. 28, 2024 (GLOBE NEWSWIRE) — The UK has been contending with a cost-of-living crisis for the past few years, where rising prices of many goods have outstripped household incomes, resulting in worsened financial situations for many individuals and families, which often create unsustainable debt situations and lead to personal insolvency or bankruptcy. Additionally, poor mental health is associated with financial problems, and this association goes both ways – with money problems being detrimental to a person’s mental health and mental health problems negatively affecting their relationship with money.
With Brits continuing to struggle with the cost-of-living crisis, it’s imperative that they receive the right advice when it comes to dealing with personal insolvencies, says Claire Middlebrook, the CEO and founder of Middlebrooks Advice, a leading insolvency practice based in Edinburgh, Scotland. As a member of the R3 Insolvency Committee, Middlebrook plays a vital role in the formation and development of policies designed to support individuals in financial hardship.
According to Middlebrook, many people are getting debt advice from unqualified individuals, leading to worse outcomes. While many of these individuals mean well or have dealt with debt themselves, there is no one-size-fits-all solution to debt problems, and they often end up spreading incorrect information. When it comes to providing advice on how to deal with debt, licensed insolvency practitioners are the professionals who are best-positioned to help individuals and businesses. While insolvency practitioners indeed seek to recover assets on behalf of the creditors, there is also a misconception that they are out to take everything from debtors, leaving them homeless. This scares away people in debt from consulting an insolvency practitioner and makes them more susceptible to received flawed advice.
However, Middlebrook says that licensed insolvency practitioners have a duty of care to the debtor, and there is a comprehensive legal framework governing their actions.
“A licensed insolvency practitioner is regulated by one of the three regulatory bodies, either the Institute of Chartered Accountants of Scotland (ICAS), the Institute of Chartered Accountants in England and Wales (ICAEW), or the Insolvency Practitioners Association,” Middlebrook says. “Those regulatory bodies regularly inspect our businesses, ensuring that we are treating people properly by adhering to the legislation. If an individual has a property within their insolvency estate, there are specific guidelines on how we are to deal with that property. Many people think that insolvency practitioners can do what they want and take everything. In reality, there’s a lot of oversight. We have to go through several rounds of consent to repossess a property. We have to obtain the consent of the courts, the regulators, and the creditors, to name a few. The idea that if you go into a bankruptcy scenario, your house is immediately taken away from you is actually false. That can’t and shouldn’t happen.”
Another misconception that Middlebrook seeks to address is the idea that licensed insolvency practitioners are extremely expensive to use. When an individual declares themselves bankrupt or enters an individual voluntary arrangement (or a trust deed in Scotland), it’s actually the creditors that bear the cost of the process, not the individual. In an insolvency estate, the debtor’s income is assessed according to prescribed income and expenditure figures, known as trigger figures, using the common financial tool created by the government. Middlebrook adds that many people believe that the insolvency practitioner can do anything they want with the amount being taken out from the debtor’s income.
“In order for us to withdraw our remuneration, we have to get agreement from the courts and from the creditors,” she says. “While we hold the money in an account that’s under our control, it’s held on trust for the creditors of the insolvency estate, which is distinct and separate from our business bank account, which holds the money used to pay our business expenses.”
Middlebrook says that people’s wariness of consulting licensed insolvency practitioners has resulted in most of them turning to debt charities. While she believes that debt charities have a place within the framework by providing advice for people whose situations might not be suitable for bankruptcy or individual voluntary arrangements, these charities are often overloaded with cases.
Given the intricate relationship between financial wellbeing and mental health, Middlebrook believes that licensed insolvency practitioners have a crucial role to play. As such, Middlebrooks Advice’s client-facing staff have received mental health first aid training, allowing them to recognise the signs of mental distress in the people they interact with and institute extra precautions when working with people that are deemed vulnerable.
“Licensed insolvency practitioners can help people struggling with debt because we do it professionally and from a non-judgmental place,” Middlebrook says. “Unlike family or friends, we do not judge how someone got into debt, and we’re legally bound by our duty of care. There is often a chicken-and-egg scenario in many situations, where the financial worries may have triggered mental health issues or pre-existing mental health issues may be behind the financial problems. In many cases, the solution is to have a clean slate, and that’s what an insolvency practitioner can offer people. We can give them certainty about their finances by mapping out a financial recovery journey that lasts anywhere from the next twelve months to five years – and this provides them a great deal of comfort and improves their mental health.”
Media contact:
Name: Claire Louise Campbell Middlebrook
