The rise of the invisible debtor

Over the past decade, this country’s economy has been fuelled by consumer borrowing. We have been encouraged to spend and pay later through slick marketing campaigns and the easy availability of credit; from this we have developed a ‘must have now’ culture and millions of consumers have become burdened with unmanageable debt.

We are now paying for this. Figures released by the Insolvency Service show that the number of people being declared insolvent in England and Wales hit 134,142 in 2009 - an increase of 26% or 27,598 individuals compared to 2008.

This is the highest number of insolvencies since records began back in 1960.

However, the Association of Business Recovery Professionals, or R3, believes there could be as many as 700,000 ‘hidden debtors’ – basically, people who are in long-term debt management plans but have no hope of repaying their debts during their lifetime and are, therefore, technically insolvent.

I think this is just the tip of the iceberg – too many people have debts that they have no realistic hope of repaying. Some try to take out an IVA but are turned down. Others would like to go bankrupt but can’t afford to, as it currently costs £510 (or £360 if you are on certain benefits).

I have many clients who are no longer paying their debts, but don’t know where to turn to – their debt, and stress levels, are increasing every day.

When all other options of repayment have been considered and exhausted, then bankruptcy, as a final solution, will sort out the debts once and for all.

Unfortunately, some debt management firms tend to steer clients away from this option because it will not normally earn them a fee.

Consumers themselves might also be against going bankrupt, firstly, because they fear having to attend court to file for bankruptcy and secondly because they don’t want their name and address to appear in the local paper for all the gossipmongers to feed on.

However, what many people don’t know is that on 6 April 2009 the Insolvency Service removed the mandatory requirement to advertise someone’s bankruptcy in the local paper.

Meanwhile, the Insolvency Service is also considering removing the requirement for the bankrupt to attend court - instead this will be done online. This is, however, unlikely to be introduced this year and is still under review.

Some will argue that we shouldn’t make it too easy for people to go bankrupt.

But I disagree. I see the pain and suffering of people who have lost the ability to repay their debts.

They are plagued by debt collectors and harassed to pay money they simply do not have; many become depressed and often turn to alcohol, crime or gambling.

Going bankrupt is not an easy option; even after discharge, a person will have no credit facilities, no overdrafts, no credit card and no credit file. However, for many people it is the only answer to breaking out of their debt spiral.