Past Articles for April, 2006

With Britain passing the cumulative debt watermark of £1 trillion this decade amid a growing frequency of debt-linked problems, National Savings and Investment’s Elen Thomas says there has been an ideological shift where money is concerned.

Describing the ease with which credit card spending is undertaken, Ms Thomas argued it was easy to deceive oneself that hard cash was not being handed over.

“It is so easy to hand over a credit card,” she explained.

“There is no physical reality of handing over cash,” she went on, describing the “disconnect” between the act of spending and the reality of dwindling funds.

“The younger generation especially, don’t see saving as an immediate concern,” she concluded.

Apacs estimates more than nine in ten adults hold one or more credit cards and have credit card debt.

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Whereas in 1995/6 376 people became bankrupt, 655 people fell victim to debt pressures in 2005/6.

In particular those aged between 18 and 29 emerged as an increasingly vulnerable group, with the percentage of bankrupts coming from the young doubling since the new millennium.

“More young people are going bankrupt because of things like student loans they are also less likely to have assets to lose by going bankrupt,” Frances Walker of the Consumer Credit Counselling Service told the East Anglian Daily Times.

“We often recommend people go for bankruptcy but it really depends on the person and what’s the best option for them.”

Ms Walker suggests that 25 per cent of people with severe debt issues use bankruptcy as a means of dealing with their debt, blaming the trend on an increasingly credit-driven economy.

David Mond, CEO of debt resolution company, ClearDebt commented: “Ex-students may be using bankruptcy to offload their debt but this really is the nuclear option. They should also be aware that going bankrupt will not affect any student loan they have that will still need to be repaid in full.

“Currently student loans are covered by the other major personal insolvency procedure, the IVA, or Individual Voluntary Arrangement, but there are signs that this will not remain the case forever.”

Britain’s debt now exceeds £1 trillion, a significant growth which has prompted legislation in Parliament to protect credit card consumers and highlighted the importance of the effective management of loans, overdrafts and mortgages.

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ClearDebt welcomes the proposals made on April 5 by the Insolvency Practice Council (IPC) for enhanced ethical standards for Individual Voluntary Arrangements (IVAs) - but thinks they should have been tougher:

Commenting, ClearDebt CEO, David Mond, said:

“We think that, in two key areas, the IPC should have gone further. First, we agree that face-to-face meetings with debtors are essential to ensure people understand their rights and responsibilities. We also think they may make a difference in outcomes for creditors.– Debtors who are unwilling to make a meeting may prove unreliable payers. However, ClearDebt think that, wherever possible, this meeting should be with a person who is independent from the insolvency practitioner who is putting forward the arrangement: This should ensure both debtors and creditors have maximum confidence and that the arrangement is not being mis-sold.

“We also agree that standard fees will make the SIVA more transparent, but we think the IPC should urge the government to cap fees when the SIVA is introduced. Failure to do this means, ClearDebt believes, that IVA providers will continue to operate in their current marketplace and not bite the bullet of trying to compete with companies who offer informal debt management plans (DMPs). Competing with DMPs would bring the certainty and debt forgiveness of the IVA to a much greater number of over-indebted people – many of whom have not heard of IVAs, but for whom an Individual Voluntary Arrangement would certainly be best advice”.

To see the IPC’s report, go to:

IPC 2005-6 Annual Report

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