Insolvency rising amongst the young
Increasing numbers of people aged between 25 and 34 are being declared insolvent, official figures show.
One in four people who have taken out a debt relief order (DRO) since 2009 fall into the 25-34 age group, according to the Insolvency Service.
"Traditionally, when young people have borrowed money it has been with the expectation of a continual rise in earnings over coming years. Young people of today may have borrowed with the same expectations, but the difference is that those expectations have not been realised, leaving many struggling to meet agreed repayment plans," says Joanna Elson, chief executive of the Money Advice Trust (MAT).
"At the same time it is getting more expensive to fill up the car, heat the home and put food on the table. The combined effect of all these pressures is that more young people are looking for a different solution to help them back on their feet, and for some the most suitable option is a debt relief order."
Over 44,000 DROs have been made in England and Wales since they were introduced in 2009. A DRO is used rather than a bankruptcy if someone has debts of less than £15,000 that they have no realistic prospect of paying off. To qualify for a DRO you must not own your own home and have less than £300 in assets and savings. It is a formal process but is cheaper than going bankrupt and doesn't involve the courts.
However, a DRO should not be considered an easy way out of debt. Anyone with a DRO has to declare them when applying for a loan for six years and they also affect people's credit rating and, therefore, their ability to borrow.
The Insolvency Service has launched a Dealing With Your Debt campaign to encourage people to seek help with their debts sooner rather than later. The campaign is supported by debt advice charities including the Citizens Advice Bureau, MAT and the Consumer Credit Councelling Service (CCCS).
If you are worried about your debt levels you can get free independent advice from the CCCS helpline, 0800 138 1111, which is open 8am to 8pm on weekdays.
Generally speaking, insolvency is to businesses what bankruptcy is to individuals. A company is insolvent if the value of its assets is less than the amount of its liabilities, or it is unable to pay its liabilities (loan payments) as they fall due. It’s an offence for an insolvent company to keep trading, so the main options available to an insolvent company are: voluntary liquidation, compulsory liquidation, administration or a company voluntary arrangement.
A person (or business) unable to pay the debts it owes creditors can either volunteer or be forced into bankruptcy – a legal proceeding where an insolvent person can be relieved of their financial obligations – but loses control over their bank accounts. Bankruptcy is not a soft option. Although it may wipe the financial slate clean, it is extremely harmful to a person’s credit rating (it will stay on your credit record for six years) and will adversely affect your future dealings with financial institutions. Bankruptcy costs £600 paid upfront.