Debts of despair as DTI insolvency statistics rise

According to the second quarter insolvency figures published by the DTI, people are taking a more practical approach to their debt through the use of the Individual Voluntary Arrangement (IVA) procedure. Over 11,000 IVA’s were approved in the quarter from April to June 2006 an increase of 34.9 per cent on the previous quarter and a 153.2 per cent increase on the same quarter in 2005. Bankruptcies for the period have actually declined by three per cent on the previous quarter 2006.

Bev Budsworth, managing director of The Debt Advisor Ltd says: “the majority of people do actually want to pay off their debts, and the thought of filing for bankruptcy fills them with dread. The inability to pay your debts brings about feelings of shame and guilt which, in turns, lowers one’s self esteem. The IVA procedure allows individuals to repay their debt in an affordable manner and can also provide debt relief for the proportion of debt that you can’t afford to repay.”

Michael Geoghegan, chief executive of HSBC, recently hit out at the marketing of easier bankruptcy and IVA’s and is concerned over borrowers taking the easy route to escape their debts. This came as third of all the UK’s five largest banks provisions on its UK unsecured loan book were related to people going bankrupt or taking out IVA’s, up from 22 per cent in the second half of 2005.

Bev comments: “It’s easy to apportion blame on the borrowers but it is hardly surprising that people have ended up with serious levels of debt when you consider how available credit has become in the last 25 years. It stems back to a call by the Bank of England in the early 1980’s to make credit more freely available to the man in the high street. Lord Griffiths, then a director in the Bank of England has subsequently commented that he could not envisage how overwhelmingly credit institutions would respond.

In the good old days no-one had coined the term ‘retail therapy’ as shops were only open nine to five, Monday to Saturday! There were a handful of banks who ruled the world of money, banking and credit and building societies were the ‘safe’ places where you stashed your spare cash or got your mortgage. We all had a bank manager you knew but dreaded seeing and who called you in occasionally to talk about your inability to stay within your £100 overdraft facility.

Lifestyle magazines were everywhere and paper-thin models did look great in the designer threads but the price tags were so exorbitant that there was little sense getting worked up about ever owning them. Most of us could barely manage on our meagre salary and only the middle class had a ‘flexible friend’.

Contrast that with today and it is apparent that we are living in another century. It is now not uncommon to find the man on the street with three or more credit cards, a fistful of store cards plus a couple of personal loans funding luxury items.

Budsworth continues: “In 2006 it is just so easy to get credit and it seems the more credit you have the more you are offered. Many people don’t have the time or inclination to work out the effect that an additional credit will have on their budget or take the time to prepare a personal balance sheet of their assets and liabilities.


“In the industry, we have seen a vast growth in companies offering IVA’s. I firmly believe that we should offer individuals a choice as to how they deal with their debt and always take a pragmatic approach. It’s a balancing act and no two debt cases are ever the same. There are people on benefits whose only option is bankruptcy but many others may be able benefit from consolidating their debt through re-mortgaging or a secured loan or repaying their debt in affordable, monthly instalments through a tailored formal solution - an IVA. It isn’t a case of one size fits all, you have to take each case on its own merit and work with that individual to get the best outcome.”

The approval rates for IVA’s demonstrate that creditors themselves are taking a practical approach to debt resolution. This could take the form of either a five-year payment plan, or full and final settlement which usually involves offering a lump sum raised through re-mortgaging - the balance of the debt being written off.

Ends


There are lots more useful hints and tips for dealing with life and debt at :
http://www.thedebtadvisor.co.uk
Tel: 0161 877 2081

For further information please contact Joanne Fletcher-Wall or Alex Henshall at Bell Pottinger North on 01625 506444 or email:
jfletcher-wall@bellpottingernorth.co.uk or
ahenshall@bellpottingernorth.co.uk


BEV BUDSWORTH
Bev Budsworth is an insolvency practitioner with more than 20 years’ experience in dealing with debt issues.

A regular media commentator, Bev has spoken on a wide-range of issues including divorce, self-certificated mortgages, DIY, mature debt and online gambling. She has been regularly quoted in The Guardian, Daily Telegraph, The Observer, Daily and Sunday Express as well as women’s magazines including Woman and Red. In the last 12 months she has offered advice on regional television news programmes and BBC local radio phone-ins.

In June 2000 she established The Debt Advisor, one of the first firms to offer comprehensive advice on all debt issues. She had previously spent 17 years with an international firm of chartered accountants where she specialised in personal and business insolvency.

Her experience of dealing with personal debt issues led in 2005 to her being asked to join a government-led working party to look at ways of simplifying the formal procedures of helping people out of debt.

Since then she has led the way in calling for a professional personal debt/insolvency study course to be set up for all people involved in debt advice to individuals.

She works together with a psychologist and they have developed strategies to help motivate clients to change their lifestyle. As a busy married mother of three teenage children she understands the pressures that families face. She believes that with a positive outlook there is always a sensible way to deal with financial difficulties and turn lives around.

Bev recently launched a campaign to bring about a greater understanding of debt and its links to depression giving debtors in the UK access to a two-pronged approach to relieve the misery caused by debt. She is the first in the UK to offer debt advice and personal counselling under one roof. The campaign is geared to help those who are seriously struggling with the wider effects including depression, relationship breakdown, poor work performance and associated health problems.