Blatt
08-09-2003, 05:49 AM
New rules on bankruptcy
By Isabel Berwick
Published: August 8 2003 15:06 | Last Updated: August 8 2003 15:06
The boom in personal borrowing shows no signs of letting up, but a
sharp rise in the number of people declaring themselves bankrupt has
highlighted the downside of our mania for easy credit.
The number of personal insolvencies in England and Wales rose by 14
per cent in the second quarter to 8,662 against the same period a year
ago. Patrick Boyden, a partner at PwC specialising in personal
insolvency, says the figures are worrying.
"The last peak was in the early '90s, when the figure got up to around
36,000 people a year," he says. "We are running at around 34,000 at
the moment and we have got a much more benign economy. So why are
bankruptcies rising? The amount of personal debt we have is
significantly higher than back then, and because there is more lending
there will be more casualties."
The latest Bank of England figures, for June, show continued record
rises in unsecured lending through overdrafts, loans and credit cards.
Collectively we have racked up outstanding unsecured debts of ?164.4bn
on top of secured lending (against property through mortgages and
related products such as equity release schemes) of ?713.8bn.
Boyden says: "There's a different attitude to debt now - a lot of
second mortgages are about paying off credit card bills rather than
building conservatories. People are more relaxed about debt and more
relaxed about paying it off."
The rise in the number of bankruptcies is part of this more relaxed
attitude to credit. There is little stigma attached to declaring
yourself bankrupt other than a six-year tag on your credit record.
Under current rules, it takes a minimum of three years to become a
"discharged" bankrupt. Once a bankruptcy has been discharged,
ex-bankrupts no longer have to tell would-be lenders of their past
status. Although credit reference agencies carry full details of
judgments, an increasing number of so-called "sub-prime" lenders are
willing to lend to people with a history of bad debts.
From April next year, the new Enterprise Act will make it even easier
to declare yourself bankrupt - and bounce back within a year. Boyden
says: "It could be a very short period - dropping from three years to
two or three months." Once the bankruptcy is discharged, it is
possible to apply for credit cards and loans again.
Under transitional rules in force now, anyone declaring themselves
bankrupt is unlikely to be discharged any later than March 31 2005.
The moves to make personal insolvency easier originate in Department
of Trade and Industry initiatives to help entrepreneurs get back on
their feet after business failures. The moves were inspired by the US,
which has 10 times the rate of bankruptcies seen in the UK, but where
a much higher number of ex-bankrupts get back into business.
Mike Gerrard, partner at Grant Thornton and another personal
insolvency specialist, says the knock-on effects of this
business-oriented move were perhaps unforeseen: "On the personal
insolvency side you are dealing with entrepreneurs but you are also
dealing with a massive population of consumers. These rules help the
entrepreneurs but they reduce the incentive for customers who
overspend to look after their affairs sensibly."
The easy availability of cheap credit has exacerbated the problems.
Gerrard says that his clients have much higher levels of debts than
five years ago.
"Mostly the debt is on store cards and credit cards, and it is much
easier to re-mortgage than it used to be. That is fine as long as
there is no property crash or interest rates don't go up. If either of
those things happen, the problem could get much worse."
Gerrard warns that, despite the newly lenient rules on bankruptcy, it
should not be taken lightly. "Going bankrupt can have a serious effect
on future employment, and if you have any surplus income the trustees
will want it - this provision remains in place for three years and a
lot of people have not picked up on that."
Homeowners are also liable to lose their homes. If a house is owned
jointly by husband and wife, and the husband goes bankrupt, the
trustees will want half of the equity in the home, which could lead to
the family home being sold.
"In general, all your assets are at risk, with the exception of your
pension scheme," Mr Gerrard warns.
*
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*
or: http://snurl.com/20cx
By Isabel Berwick
Published: August 8 2003 15:06 | Last Updated: August 8 2003 15:06
The boom in personal borrowing shows no signs of letting up, but a
sharp rise in the number of people declaring themselves bankrupt has
highlighted the downside of our mania for easy credit.
The number of personal insolvencies in England and Wales rose by 14
per cent in the second quarter to 8,662 against the same period a year
ago. Patrick Boyden, a partner at PwC specialising in personal
insolvency, says the figures are worrying.
"The last peak was in the early '90s, when the figure got up to around
36,000 people a year," he says. "We are running at around 34,000 at
the moment and we have got a much more benign economy. So why are
bankruptcies rising? The amount of personal debt we have is
significantly higher than back then, and because there is more lending
there will be more casualties."
The latest Bank of England figures, for June, show continued record
rises in unsecured lending through overdrafts, loans and credit cards.
Collectively we have racked up outstanding unsecured debts of ?164.4bn
on top of secured lending (against property through mortgages and
related products such as equity release schemes) of ?713.8bn.
Boyden says: "There's a different attitude to debt now - a lot of
second mortgages are about paying off credit card bills rather than
building conservatories. People are more relaxed about debt and more
relaxed about paying it off."
The rise in the number of bankruptcies is part of this more relaxed
attitude to credit. There is little stigma attached to declaring
yourself bankrupt other than a six-year tag on your credit record.
Under current rules, it takes a minimum of three years to become a
"discharged" bankrupt. Once a bankruptcy has been discharged,
ex-bankrupts no longer have to tell would-be lenders of their past
status. Although credit reference agencies carry full details of
judgments, an increasing number of so-called "sub-prime" lenders are
willing to lend to people with a history of bad debts.
From April next year, the new Enterprise Act will make it even easier
to declare yourself bankrupt - and bounce back within a year. Boyden
says: "It could be a very short period - dropping from three years to
two or three months." Once the bankruptcy is discharged, it is
possible to apply for credit cards and loans again.
Under transitional rules in force now, anyone declaring themselves
bankrupt is unlikely to be discharged any later than March 31 2005.
The moves to make personal insolvency easier originate in Department
of Trade and Industry initiatives to help entrepreneurs get back on
their feet after business failures. The moves were inspired by the US,
which has 10 times the rate of bankruptcies seen in the UK, but where
a much higher number of ex-bankrupts get back into business.
Mike Gerrard, partner at Grant Thornton and another personal
insolvency specialist, says the knock-on effects of this
business-oriented move were perhaps unforeseen: "On the personal
insolvency side you are dealing with entrepreneurs but you are also
dealing with a massive population of consumers. These rules help the
entrepreneurs but they reduce the incentive for customers who
overspend to look after their affairs sensibly."
The easy availability of cheap credit has exacerbated the problems.
Gerrard says that his clients have much higher levels of debts than
five years ago.
"Mostly the debt is on store cards and credit cards, and it is much
easier to re-mortgage than it used to be. That is fine as long as
there is no property crash or interest rates don't go up. If either of
those things happen, the problem could get much worse."
Gerrard warns that, despite the newly lenient rules on bankruptcy, it
should not be taken lightly. "Going bankrupt can have a serious effect
on future employment, and if you have any surplus income the trustees
will want it - this provision remains in place for three years and a
lot of people have not picked up on that."
Homeowners are also liable to lose their homes. If a house is owned
jointly by husband and wife, and the husband goes bankrupt, the
trustees will want half of the equity in the home, which could lead to
the family home being sold.
"In general, all your assets are at risk, with the exception of your
pension scheme," Mr Gerrard warns.
*
Find this article at:
http://news.ft.com/s01/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&cid=1059478826977&p=1039523515893
*
or: http://snurl.com/20cx
