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Credit report specialist Experian has questioned whether people realise how serious the consequences are for their credit record should they declare themselves bankrupt.

According to recent figures from The Insolvency Service, there were over 15,000 bankruptcies declared in England and Wales in the first quarter of 2006, a 73 per cent year-on-year rise.

“The level of bankruptcy has increased,” said James Jones, Experian’s consumer affairs manager. “We are concerned that people don’t realise their credit report will not be wiped clean after one year.”

Mr Jones noted that despite the fact that a bankruptcy order will still appear on a person’s credit record after six years, a greater proportion of people appeared to be opting for bankruptcy above other forms of debt management, such as a consolidation loan.

By seeking professional advice from an independent financial adviser, people can find out whether a debt consolidation loan is best suited to their own individual situation and explore other alternatives to bankruptcy.

Source:
Fair Investment Company
13 May 2006

Benedict Mackenzie comments: – getting good practical advice on the full implications of bankruptcy will help those in debt to make a fully informed decision on the best options for them in their individual circumstances.

The number of companies facing winding up petitions in England and Wales rose by almost 9 per cent in the first three months of the year, according to official data released yesterday. The Department for Constitutional Affairs said 3,150 companies received petitions against 2,892 for the same period in 2005.
One analyst said factors in the increase could be small business failures in a fiercely competitive high street and petitions being served on companies caught undertaking value added tax fraud, he said.

Source:
Financial Times
13 May 2006

Benedict Mackenzie comments: “the government’s easing of the bankruptcy laws was intended to help entrepreneurs and small business owners, by taking away some of the stigma of bankruptcy; the government wanted the economy to benefit by encouraging entrepreneurs to take risks and establish businesses without some of the penalties that failure incurred.

The irony is that it is these very businesses that are now suffering as unprecedented numbers of individuals take advantage of easy credit and relaxed insolvency laws. The current increases in personal insolvency are completely unsustainable and without an urgent look at current credit rules we’re looking at a recipe for disaster for our businesses.

The number of people declaring themselves bankrupt has nearly doubled during the past year, government figures showed today.
A total of 13,897 people in England and Wales applied for bankruptcy themselves, as opposed to being forced into bankruptcy by their creditors, during the first three months of 2006.

This was an 85% increase on the 7,528 people who petitioned for bankruptcy during the first quarter of 2005, according to the Department for Constitutional Affairs (DCA).
But the number of people forced into bankruptcy by their creditors rose only slightly during the year, increasing by 16% to 5,615.

Source:
Guardian
12 May 2006

Benedict Mackenzie comments: Bankruptcy is not the only option for people with debt problems. It is important for an individual to find out all courses of action open to them from a professional adviser before going down one particular route – especially one that carries the severe consequences of bankruptcy.

BANKRUPTCY, which comes from the old Italian word bancarotta, or broken bench, used to carry great stigma.

But experts say that changes to bankruptcy laws mean it is now ‘a pragmatic option’, rather than a ’ lifeshaming event’.

Under the 2002 Enterprise Act, those who declare themselves bankrupt can have their debts discharged after one year rather than three.

It is even possible to apply for bankruptcy online, making the process easier and less humiliating.

When debtors are declared bankrupt, assets such as their home and investments can be sold to pay their creditors.

This is why it is an increasingly popular option among the young, such as students who have no assets but a lot of debt.

In 2001, 7.9 per cent of bankrupts were aged between 18 and 29. Today the figure is 18.7 per cent.

The Insolvency Service insists that the soaring number of personal insolvencies is nothing to do with changes to the law.

An increasingly popular alternative to bankruptcy is an individual voluntary arrangement.
With an IVA, the debtor can make a deal with creditors to repay a proportion of the debt over a period of time, usually five years.

An insolvency expert checks that payments are made. At the end of the IVA, any outstanding debt is usually written off.

Daily Mail
May 2006

Benedict Mackenzie comments: I am certainly seeing this reflected in the increasing number of enquiries from people in their 20’s, still living at home, with no realisable assets, but with lifestyles above their means! The best recommendation has to be bankruptcy, these days.

A growing proportion of middle-income families is struggling to manage its debts, according to research by the Consumer Credit Counselling Service.

The research on unsecured debt, shows that households earning a net £30,000 a year and more account for 4.7 per cent of the clients of the debt advice charity, up from 1.4 per cent in 2003.

Helen Saxon of the CCCS and the author, said low-income households used credit to pay for essentials but middle-income families resorted to loans and credit cards to fund consumption.

The CCCS, which advises 1,000 people a week, said its report, based solely on its clients, showed that those earning more than £30,000 ran up an average unsecured debt of £70,000. Households with net income of less than £10,000 a year had an average of £20,000 in unsecured borrowings.

Middle-income families were able to run up big debts because credit was more easily available. “A lender sees less risk in lending to someone with a high income,” according to the report that found that middle-income families had on average 13 credit commitments compared with seven for those with annual earnings of less than £10,000.

Middle-income families with the biggest problems tended to be married, have children and be older than highly indebted poorer counterparts. The most common place for them to live was around London, suggesting high house prices were a factor in their overborrowing.

Benedict Mackenzie comments: The higher a person’s income the more credit they have access to. They are also likely to have more fixed outgoings, such as school fees, which those on lower incomes do not have. With the cost of borrowing so low, it can seem like an easy option to pay for goods on credit in order to sustain a lifestyle, but it is important to seek professional advice if that borrowing looks like it’s getting out of control..

Source:
Financial Times
19 May 2006

A million people in Britain could be on the verge of bankruptcy, while one in five adults – or eight million – have unsecured debt of more than £10,000, according to a report out today. Research by YouGov suggests 1.7 million people often struggle to meet their debt payments. Nearly a million of those could have problems meeting their obligations every month.
Bank of England figures last year showed the amount of personal debt in Britain had broken through the £1 trillion mark, with people encouraged by low interest rates and the easy availability of credit. Much of that debt is mortgage, or secured debt, but a growing proportion is unsecured credit card or overdraft debt.

Of the 1,366 people YouGov interviewed, 13% said they were quite likely, or even certain, to declare themselves bankrupt in the near future. That equates with one million people across Britain. Recent government figures showed there were 23,351 personal insolvency filings in the first quarter of this year in England and Wales, a 13% rise on the previous quarter and a 73% increase from a year earlier. Experts predict the number going bankrupt this year will top 100,000 but YouGov showed that 900,000 people across Britain have sought help from a debt solutions company.

Source:
Guardian
22 May 2006

Benedict Mackenzie comments: it is encouraging that an increasing number of people are seeking help for their debt problems, but the issue of debt is increasing faster and faster. The ease with which people can obtain credit is having a drastic effect on our society. Often people have overspent well beyond their means before they realise that they can no longer extricate themselves and are in danger of losing everything, at this point professional help is the only way of finding a solution.