Loans and Credit Cards: Bankruptcy on the Up
New figures have been released showing that in 2005, 67,800 people were declared bankrupt. In the second quarter of 2006 alone, around 26,000 people became insolvent in England and Wales, a rise of 66% on last year. The way it’s going, it looks like the number of personal insolvencies in 2006 will top the 100,000 mark.
So why has bankruptcy become such big business? The main reason is because so many people live beyond their means. Dubbed the ‘spend it like Beckham culture’ - getting credit is far easier than it used to be, and many people take out a mortgage, loans and credit cards - using them to fund a lifestyle they can’t realistically afford. When they get behind with the repayments, many people bury their head in the sand rather than face up to their problems, and finish up by having their home repossessed and by being made bankrupt.
Some financial experts also think that the rise is partly due to insolvency becoming an easy option. ‘Bankruptcy’ is no longer a dirty word, and recent changes in legislation mean that many bankrupts could find themselves discharged within a year, whereas it used to be two or three years. Also, it is no longer a requirement for bankrupts to have to sell their homes, possibly helped by the upturn in the housing market, which has enabled some bankrupts to be in positive equity despite their inability to pay back their debts.
The Government’s Insolvency Service stresses that bankruptcy is not an easy ride, and they would be putting pressure on bankrupts to discharge their debts. In particular, bankrupts deemed to have ‘recklessly’ gotten into debt would be pursued for the losses, with the help of Bankruptcy Restriction Orders (BROs). BROs ensure that bankrupts under the restriction order would not be able to get credit without disclosing their status, start trading under a new name, or hold a company directorship, up to a maximum time period of 15 years. The Insolvency Service estimated that around 10% of bankrupts would also have a BRO to contend with.
The Liberal Democrats believe that the debt problems in the UK could be helped if people knew where to look for help when they need it. For example, there are a number of free and confidential Debt advice lines that can provide excellent advice. They also suggest that the problem could be attacked at source, for example, lenders should be more transparent about the costs and implications of taking out a credit card and making only the minimum repayments. They also suggest that money management skills should be taught at school.
The problem is not going away for the meantime, that’s for certain. High street banks recently announced that their bad debts are already soaring - Lloyds TSB and Egg have both made announcements - and the total British unsecured debt is estimated to be £191 billion. That equates to £3,250 per person in the UK.
By educating people about debt - knowing when to stop buying, and when to start worrying - bankruptcies could be tackled effectively. But for now, they’re not going away - bankruptcy is a culture that for the time being, is here to stay.
Call the National Debtline on 0808 808 4000 or visit their website at www.nationaldebtline.co.uk for free and impartial advice on managing your money.
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