With the government announcing 34,743 individual insolvencies in England and Wales in the second quarter of 2010 - 5% up on the same time period last year - spare a thought for those individuals who have been battling unemployment and credit problems and who have now decided that insolvency is the only route left.
Many people regard bankruptcy as an easy way out of paying debts. I simply can’t agree with this as I have often seen the pain and suffering of those going through the experience.
Insolvency involves an individual either going or having been made bankrupt, or successfully proposing an Individual Voluntary Arrangement (IVA), which is seen as a less stringent form of insolvency.
An IVA allows a borrower to enter into a repayment programme, usually for five years with interest and charges frozen and with the remaining debt written off upon completion of the arrangement. This is unlike a debt plan, where you pay back the debts in full and interest and charges can still be added.
From my experience the majority of consumers who end up going bankrupt have previously been able to meet their commitments until they suffered a trigger such as unemployment, a breakdown in a relationship or illness.
For some it is just too much to recover from and they end up being plagued by debt collectors who harass them into paying monies they do not have. They then become ill, depressed and often turn to alcohol, crime or gambling.
Their debt problems can also impact on their relationships, their friends and their work. What support do we offer these people? Not a lot.
Instead we advertise their names in the local papers, though thankfully, from April this year, this has stopped for most cases.
We put their names, occupations and home address on a public register and then bar them from having bank accounts and future credit. What further compounds the matter is that we are fast moving towards a cashless society.
This makes it harder for those who have been through financial difficulties, as they can’t pay by direct debit, receive wages electronically or use the internet for purchases if they don’t have a debit card.
The banking industry isn’t helping matters either. Only two out of 17 banks seem prepared to offer bankrupts an account and credit facilities are difficult to come by or are denied. It’s no wonder then that people find it hard to get back on their feet.
Are we sowing the seeds of unrest by making these people feel like outcasts in society? Isn’t it about time we started to support and help them manage and rebuild their lives instead of ostracising them?
I agree that it’s right to investigate bankrupts so that anyone who has been negligent or reckless pre-bankruptcy is subject to a bankruptcy restriction order (BRO). Once imposed on the bankrupt, this restriction means after discharge (usually 12 months) the bankrupt will be subject to certain rules for between two and 15 years.
Furthermore, if they have any money left over each month after paying normal reasonable expenditure they have to contribute to the bankruptcy by making monthly payments for a period of three years.
My forecast for 2010 is for insolvencies to peak at around 165,000, made up of 110,000 bankruptcies and 55,000 IVAs. This dwarfs the number reported for last year, which was 134,142, so this problem is not going away and is growing by the day.
Perhaps the truth is that some of us who can pay our debts have a problem in accepting the stigma of bankruptcy could disappear and that a different view could be taken in the future. Creditors in particular need to wake up and listen and support borrowers that are prime candidates for bankruptcy.