I have just learnt that as from 6^th April 2010 the fee you will have to pay to go bankrupt will jump a whopping 25%, from £360 to £450!  On top of this is  the court fee of £150, and  although there are exemptions for those on benefits it means that generally, the already  struggling consumer will soon need to find £600 just to go bankrupt.  

At a time when insolvencies are running at the highest level since records began back in 1960, this has just got to be total madness. Where is the caring Government that professes to help and support the consumer?  You have got to ask whether this hike in fee has been done deliberately to keep the bankruptcy numbers down and is a ploy to force consumers into other options such as long term debt repayment programmes (DMPs) which offer no debt relief and do not appear in the bankruptcy figures. 

With unemployment levels expected to climb again this year and more house repossessions likely, there will be an increasing need for some to be able to petition for bankruptcy. Ironically the fee prevents many from doing so. 

Take the case of Jo for example; diagnosed with cancer, no longer able to work and without an income her house was repossessed in 2008. This was sold for £25000 less than its true value and now the mortgage lender is pursuing her for the shortfall, interest and legal charges of around £30,000. 

With £9,000 on credit card debts and paying £60 pcm through a debt management plan, it will take her 13 years to clear her debt if the interest is frozen.  Jo is struggling to meet even this £60 pcm and is convinced that the underselling of her property has forced her into bankruptcy. 

Jo told me that in the past she has always supported friends when they had money worries not knowing that in the future it would happen to her. She said to me ‘I have no security, I'm such a home loving person it’s destroying me, I have no hope now’. 

Problem is, with no security and  no assets apart from an aging car which often takes what little money she has, she will struggle to find the fee to go bankrupt, and, having spent much time in helping her face up to the prospect of bankruptcy, I dread having to tell her about this latest increase. 

We need urgent decisive action to help clear the ‘log jam’ of individuals, like Jo, caught in the limbo of being unable to take effective action to deal with their debt situation. Instead of increasing the fee it should instead be reduced in order to enable more to take this course of action and help erase their misery and suffering. 

Any reduction in the fee would obviously have cost implications but it would demonstrate a positive commitment towards a vulnerable element of society and would be welcomed by the debt counselling profession.  

According to the Insolvency Service back in May 2009 a bankruptcy costs on average £1,715 to administer, part of which is met from current fee. The Insolvency Service told me that ‘If the Official Receiver’s deposit were to be waived in its entirety, all the costs of case administration would have to be met from other sources, in particular, the tax payer and creditor.’ 

My response was that that I did not agree as I am convinced that it is often the creditors’ lack of support, together with additional interest charges, that force an individual into bankruptcy in the first instance. If creditors were aware that they would have to bear some of the cost of administering a bankrupt’s estate then they may think twice. I also don’t believe tax payers will need to foot the bill of reduced fees because bankrupts actually do pay something back towards the cost of administering their case.  

All bankrupts are assessed to see if they can make any payments under an Income Payment Agreement (IPA) which is a legally binding written agreement between the bankrupt and the Official Receiver. The IPA will run for a period of 36 months, initial payments will cover the cost for the administration of the bankruptcy order, after which creditors receive a dividend of the surplus funds. If so ordered by the court to pay then this becomes an Income Payment Order (IPO). 

Between 2007 -2009, 41,170 IPAs and 204 IPOs were implemented and which do not account for the selling of any assets such as vehicles or homes that belonged to the bankrupt. So in fact the Government does actually make quite a lot of money from bankrupts! 

Even more money is made, subject to the timing of the petition, in a well hidden scheme whereby an individual going bankrupt and in receipt of an income, will receive a NT tax code and the tax is diverted to the Official Receiver towards the administration costs for up to 12 months. 

Another important point is that many consumers recover from bankruptcy and rejoin the ranks of tax and National Insurance payers and contribute to the income stream, so it is not all doom and gloom for the PM. 

So let’s cut to the chase; why is it so expensive to go bankrupt? When a consumer does not have the ability to repay their debts and cannot afford to enter into any type of repayment programme through lack of funds why is there not more support? 

The last debtor’s prison shut in 1869; come on guys, that’s 141 years ago, society, culture and attitudes have moved on. You don’t hear anyone harping on too much about Portsmouth Football club about to go into Administration with debts of 70 million!

Comment on this blog...

 

Whilst quietly supping a pint of bitter in my local pub with a good mate of mine, he suddenly blurted out that he hadn’t slept in a week after receiving a letter from a firm of debt collectors, chasing him for a debt he had many years ago. I must admit he did look a bit knackered, and whilst us blokes don’t normally talk about such things, he knew that I knew a thing or two about debts and wanted some advice. 

The letter said that he had to pay £11,003.38p within 14 days or field agents would call at his home to discuss ways of paying the money back. What should he do? Ignore it and hope it would go away again or should he pick up the phone and talk to the Debt Collection Agency (DCA)? Hmmm. harassment, intimidation… that’s for another blog, let’s focus on this one. 

I asked what his Missus thought, silly question as I got the expected, ‘I daren’t tell her’. This was all before they met he said. ‘I don’t know what to do, we are struggling as it is, don’t need this’. 

I knew he has been married for over six years and a  further questioning established that the debt was in his name only, was on a personal loan he had many years ago and that about eight years ago he fell out of work for a year and had not paid or heard anything since. The solution then began to look quite simple as in this case the debt would have been ‘statute barred’ under the Limitations Act 1980 which applies to residents of England and Wales. 

Under the Act creditors/lenders are given a fixed period of time to chase their debtors/borrowers. The time scale mainly depends on the type of debt and can be extended at the courts discretion. The time limit begins when the named individuals on the agreement last admitted owing the money or made a payment. 

Should the creditor/lender fail to maintain contact with the debtor for a period of six years or more and no payment has been made, it is possible to claim that the outstanding debt is "Statute Barred" under the conditions of the Act. 

After I had explained to my good friend that the letter was likely to be a ‘fishing’ exercise by an opportunist debt collection agency and that they would not be able to pursue the debt through the courts he couldn’t have been more delighted and relieved. Whether he eventually told his wife about the issue I will never know! 

Thousands of people receive requests for payments on debts, mainly on credit cards and loans, from lenders and DCAs. Some demands are fair and reasonable but many are not with the firm demanding the money often having no legal basis to claim and therefore unable to take the borrower to court, even though threatening this in their communications. 

What is worrying is that many people actually respond to these letters because they do not know how to deal with them, feeling guilty or frightened of the implied threat of being taken to court. 

Read the letter carefully, break down the content, what do they mean, are they fishing, do they have anything at all but most of all don’t be panicked. 

Just because someone has written to you demanding money ‘or else’ does not mean you have to pay them. Weed out the chancers and opportunists that have no legal basis to pursue you for the alleged debt. One way to deal with a request for payment on an old debt is just to ignore it but if they persist do not acknowledge or admit the debt. 

You would do no harm in writing something similar to ‘before I can begin to understand the basis of your claim please furnish me with a breakdown of what sum is capital, interest and fees…. the date of the last payment that was made on the account…. under what authority are you writing… do you own the debt or are you an agent, if so who are you representing?  You know the stuff. I write this sort of letter a dozen or so times a year for my clients and have so far been 100% successful in ending things there and then. 

The key to all this is when was the last payment made on the account in question. If not within the last six years by any named person on the agreement (sole or joint names), and neither has acknowledged or made a payment in the past six years, then the debt is statute barred and the creditor/lender or agent cannot take the matter to court. 

There are, as always, exceptions to this and different rules apply in Scotland and in Northern Ireland, more on this can be found on the Debtwizard guide to dealing with old debts. 

I agree that we should always pay our debts, especially when we have the means to pay. However I do have an issue with lenders or DCAs that cannot get their acts together to ensure the debt is still legally recoverable through the courts as arguably they deserve to have the debt statute barred.

Rules are made to benefit both parties; lenders know these particular rules only too well; consumers now just need to wise up to their rights. 

We have a template letter for you and more information at the Debtwizard guide to dealing with old debts.

Comment on this blog...

 

With many home owners struggling to meet their mortgage repayments it is hardly surprising to see that repos are still high, 46,000 or so for 2009, according to the Council of Mortgage Lenders (CML). In fact I think the number, in reality, is even higher!

Although the statistics are collected correctly by the Council of Mortgage Lenders (CML) and the Ministry of Justice (MoJ) in my view they do not accurately reflect current market conditions and I believe the problem is far greater than it appears.

Looking  at the broader picture and I can  offer some very valid reasons why figures are nearer to those of the last big house recession back in 1991 when 76,100 homes were repossessed. Here are my thoughts;

No one has taken into account the number of homes being sold by families to private landlords, under 'Sale and Rent back’ (SAR) schemes, or flash sales. The Office of Fair Trading (OFT) said back in October 2008, ‘It is likely that there are upwards of 1,000 firms, together with an unknown number of non-professional landlords, who have conducted about 50,000 transactions to date’. 

Since that announcement some 16 months ago the SAR industry has gathered momentum leading to the intervention of the Financial Services Authority (FAS) and full regulation being implemented this July, rightly so in my opinion. 

Based on the OFT figures and on increasing consumer awareness of the SAR scheme I estimate that the number of homes sold under SAR in 2009 is nearer the 25,000 mark. 

Another damning factor is that the CML only collects the number of first charge holder repossessions. There are no records of how many second charge holders, usually secured loans that are repossessing homes. How many are there of these that the CML do not know about? 

What is more is that the introduction of the Mortgage Pre-action Protocol in 2008 could be a delaying factor in eventual repossession for some home owners.

The latest annual Moore Blatch 2010 repossessions report, reveals that 67% of mortgage lenders and repossession experts are predicting an increase in the number of repossessions in 2010.

Paul Walshe, Head of Lender Services, Moore Blatch, says: “The Council of Mortgage Lenders revised, and subsequently lowered their 2009 predictions for repossessions from 75,000 down to 48,000.

“However, much of this fall was due to the implementation of a government initiative to provide consistency in lenders’ approach to repossessions; the Pre Action Protocol, as it is known. This created a bottleneck which will start to clear in 2010”.

Read more and comment on this blog...

 

As the number of personal insolvencies reaches record levels, with consumers battling against unemployment and credit problems, I say the total number of insolvencies for last year in the UK should have been nearer the million mark.

Figures released by the Insolvency Service show that the number of individuals in England and Wales who went bankrupt or proposed an Individual Voluntary Arrangement, (IVA) during 2009 reached 134,142, a massive increase of 27,598, this equates to a rise of 25.9%. This is the highest number of insolvencies since the Service started collating records back in 1960. See insolvency figures since records began.

However, research by R3 has revealed that around 700,000 ‘hidden debtors’, are in long term debt management plans some of whom have no hope of ever paying their debts back in their lifetime and  are technically insolvent. They are instead, languishing in long term informal repayment programmes with no debt, or for many, no interest relief.

I think this is just the tip of the iceberg as too many people have debts that they have no realistic hope of repaying. Some try to offer an IVA to their creditors only for it to be rejected by a lender. There is also the issue of the cost for a person to go bankrupt, currently £510 or £360 if on certain benefits. I have many clients that just cannot afford to go bankrupt, are no longer paying their lenders, and the debt, pressure and stress is building everyday.

Also included in the figures are Debt Relief Orders, (DROs), which were introduced by the Government in April 2009. A DRO is designed to allow those with debts of less than £15,000 and minimal assets to write off their debts without entering into a full blown bankruptcy or having to go to Court. These are proving to only help a selected few and are totally ineffective in helping consumers because of the ridiculous and unreasonable qualifying procedure; still they work for some as 11,831 have been issued since their inception.

Insolvency involves an individual either going or being made bankrupt or successfully proposing an IVA, which is seen as a less stringent form of insolvency. An IVA allows a borrower to enter into a repayment programme, usually for 5 years, and interest and charges are frozen with the remaining debt written off upon completion of the arrangement.

Read more and comment on this blog...