Bankruptcy:
There
is a significant increase in the number of people
are choosing to go bankrupt to extricate themselves from a web of
unsecured debt.
Accountants say the upsurge is likely to continue as debts on credit cards
and store cards mount and people take advantage of easier bankruptcy rules
which mean that bankrupts can have their debts wiped out within as little
as three months.
Previously it took three years during which time they could not borrow and
were barred from many types of job. Three quarters of bankruptcy petitions
filed last year were from debtors themselves, often acting under advice
from local debt agencies or Citizens Advice Bureau.
It is sensible for some people in high levels of debt if they do not own
their own home. We are also seeing more older people who are no longer in
the trading world choose bankruptcy.
After several years of low interest rates, consumer debt recently passed
£1,000 billion. A further £875 billion is owed on mortgages. However,
there is as yet little evidence that rising interest rates on home loans
have forced many families into insolvency.
Arrears of more than six months on mortgage payments are near to their
lowest for 20 years and Halifax, the biggest mortgage lender, has
calculated that the value of people’s houses averages 3.88 times their
mortgage debts, one of the highest ratios on record.
Statistics point to a new high level of bankruptcies becoming the norm
rather than a one-off. If Britain follows the US trend, where bankruptcy
rates per head are ten times British figures, we can expect increases to
be greater still".
Insolvency law changed in April as a result of the Enterprise Act. This
was designed to make business failure less traumatic to encourage the rate
of business start-ups. Business insolvencies remain relatively low but the
new regime seems to have been adopted by consumers who have bought too
much on credit and have few other assets to lose.
Individual Voluntary
Arrangement (IVA)
IVAs
were proving an even better
alternative to bankruptcy. They allowed consumers to freeze their debts,
usually keep their houses and pay off a proportion of what they owed over
five years. He said that insolvencies could rise further if house prices
fell and homeowners could not pay off other debts by remortgaging. Advice
agencies in some of the most prosperous towns seem to be advocating
bankruptcy as an easy way out.
In the final quarter of 2004, bankruptcy petitions in Cambridge and
Bournemouth were nearly three times as high as in the final quarter of
2003. Petitions from the main towns of Hertfordshire more than doubled, as
did requested bankruptcies in Guildford and Canterbury. In most of the
Midlands and the North, as well as Greater London, increases were much
smaller.
The increase in bankruptcy levels suggests that the simplified approach is
making the procedures more attractive, Mr Treharne said. As word spreads,
more and more people are likely to take this route.
HOW TO MAKE YOURSELF
INSOLVENT
Collect a bankruptcy
application form from a county court and pay a £310 deposit. A court will
hear the case, appoint an insolvency practitioner who will decide how much
each lender will get and the period until the bankrupt’s debts can be
discharged
Debtors are allowed to discharge all their debts after one year and it
typically takes six months
If the insolvency is a result of circumstances beyond the debtor’s
control, such as disability preventing him or her from working, debts can
be discharged in as little as three months, provided that the person has
co-operated fully with the insolvency service, creditors have not called
for further investigations and a bankruptcy notice has been filed
Debtors guilty of reckless behavior, such as racking up credit card debts
on a holiday before declaring personal insolvency, can be hit with
bankruptcy restriction orders which last between two and fifteen years and
severely restrict a person’s ability to get loans and credit cards.
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