FOOL'S EYE VIEW
Bankruptcy Is Big Business

By Jane Mack (TMFJane)
November 23, 2004

A friend of mine is about to take his former boyfriend to court to try and get his half-share of the value of the home that they bought together nearly 30 years ago. Their relationship ended more than ten years ago when my friend moved out and he's getting a bit fed up of continuing to be jointly liable for all the household bills, which his ex-partner, who continues to live there, is increasingly unable to pay.

Trust me, my friend is not being unreasonable. For example, on two occasions in recent years their mortgage lender has issued possession proceedings and this impacts on my friend far more than you might think. He's an accountant so if he, as co-owner, were to allow the house to be re-possessed, there is the very real threat that he could lose his licence to practise. Not surprisingly, after ten years, he's finally had enough of 'being understanding' about his ex-partner's problems and now wants to get rid of the increasing threat to his own career. 

It's rather ironic considering part of his accountancy job involves dealing with insolvencies and that, since the passing of the Enterprise Act in April, business is booming!

According to the Department of Trade and Industry, there were 11,967 individual insolvencies in England and Wales in the third quarter of 2004 - an increase of 31%.

Most of them were outright bankruptcies but the number of Individual Voluntary Arrangements (IVA's) - where you're not quite made bankrupt but are subject to various restrictions - has shot up by 40% compared to the same period last year. (IVAs provide accountants who supervise them with a lucrative income so it's not surprising my friend doesn't want to lose his licence to practise his profession!)

But why are insolvencies on the increase?

In part it can probably be attributed to the fact that the Enterprise Act has resulted in most bankrupts being automatically discharged after just one year. In fact, you can be discharged even earlier although those who abuse the system could face financial restrictions for up to 15 years.

But it must also be down to excessive consumer borrowing and spending. Debt may be cheap at the moment but it only seems to be encouraging people to borrow even more. It's not surprising the Bank of England has been trying to curb our enthusiasm by putting up interest rates.

According to the Consumer Credit Counselling Service calls to the debt help lines have increased this year so people are clearly beginning to seek help. But their research also indicates that nearly half of their existing clients struggled with debt problems for more than a year before doing so.

Some clearly left it too late but maybe the latest bankruptcy statistics will serve as a wake-up call for people who are starting to worry about their debts but haven't done anything about it yet. The key is to tackle the problem now so that you don't face the risk of becoming just another government statistic.

The good news is that the Queen's speech included the announcement that the Government plans to update consumer credit laws which are currently more than thirty years old and in desperate need of improvement.

The changes will provide greater protection from unfair lending practices although consumer groups are already calling on the Government to require lenders to share the full credit history of their customers to ensure responsible lending and to give people with credit problems a simpler, more consumer-friendly redress system.

If the Government implements these proposals (and they'd better act quickly before the next election which is likely to be in May 2005!) they may help to reduce the number of bankrupts. There is still an element of stigma attached to bankruptcy, which makes people want to avoid it at all costs, not least because those with assets - namely their home - stand to lose them. The financial services industry also puts a big black mark against your name, which stays there for several years to come and you have to tell practically everybody that you're a bankrupt when making financial transactions.

However, for someone with large debts, little or no income and no assets, bankruptcy can be a good option. Indeed, it may be the only way out and there's no doubt that it gives you the opportunity to draw a line under past mistakes and start afresh.

The best solution, of course, is not to get into debt in the first place but if you're already there, then try your best to get out of debt before it all goes badly wrong. In the case of my friend's ex-partner, it's about to go very badly wrong indeed because he didn't face up to his problems as early as he could have done.

More: Find out how to Get Out Of Debt and contact the Consumer Credit Counselling Service if you need further support.