Portrait of a 'zombie' debtor by the IVA specialists 

Ever wondered what a 'zombie debtor' is? IVA specialists Freeman Jones warn borrowers who can only afford to pay the interest on their debts that they could be risking serious debt problems.

by Freeman Jones Monday, March 12, 2012
Portrait of a 'zombie' debtor by the IVA specialists

There’s a term being bandied about in the world of finance and it isn’t particularly complimentary. ‘Zombie’ debtors - so called because they can only afford to pay the interest on their debts each month - are another casualty of the ongoing debt crisis. Frances Coulson, president of the insolvency trade body R3, comments:

“We hear talk of ‘zombie’ businesses, but seeing individuals run their finances in the same way is troubling. ‘Hanging on’ each month simply cannot be maintained forever. This group will have very few options should interest rates rise or their circumstances change.”

Not only is a typical ‘zombie’ debtor vulnerable to change, they are also statistically more likely to turn to high-interest payday loans to meet their short-term requirements. R3's research in December showed that 3.5 million adults were considering taking out a payday loan in the next six months, despite 60% of those who'd done so saying they regretted the decision.

R3's research also highlighted some of the disturbing figures that led to the identification of the ‘zombie’ debtor phenomenon: of the one in six individuals that can only afford to pay off the interest each month, 11% are servicing credit card debt and 9% their outstanding overdrafts.

“We have every reason to believe that 2012 is going to be tougher than 2011 and so those struggling with their personal finances should seek advice now to prevent it becoming insurmountable.”

IVA specialists Freeman Jones (http://www.freemanjones.co.uk/) commented:
“Although ‘zombie’ debtors are able to service their debt sufficiently to avoid formal insolvency, they risk exacerbating their debt problem with high-interest borrowing to cover each cash crisis. Without any savings to act as a safety net, the only way - all too often - is down. However, debt solutions such as Individual Voluntary Arrangements (IVAs) are designed to solve a debt problem rather than masking it with more borrowing.”

The emergence of ‘zombie’ debtors could partly account for personal insolvency figures falling to a three-year low as borrowers try to hold off addressing their financial problems. Other factors, such as the increase in Debt Relief Orders - for those with assets of £300 or less and debts of under £15,000 - could also contribute to the drop in bankruptcies we've seen in recent years.

Why do zombie debtors cling to credit as a method of solving debt issues? Freeman Jones summed it up:
“Some people avoid unsecured debt solutions because they hope that by ‘papering over the cracks’ they can buy themselves time to get their finances back on track and avoid the prospect of insolvency. This isn't likely to be the best approach: although it is a formal insolvency solution, an Individual Voluntary Arrangement could be a manageable way for them to pay back as much as they can afford and write off the rest, giving them a real opportunity to resolve their financial issues.”


Notes to Editors

Freeman Jones is a licensed Insolvency Practice. Its Insolvency Practitioners are all members of the Association of Business Recovery Professionals (known as R3) and licensed by either The Insolvency Service (part of the Department for Business, Innovation and Skills) or The Insolvency Practitioners Association (IPA).

The company is a member of the Think Money Group, one of the UK's leading providers of financial solutions. It is also a member of DEMSA, the Debt Managers Standards Association.

For more information, visit the Freeman Jones website at

Melanie Taylor
Freeman Jones
Tel: 0845 056 6480

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