Perhaps not surprisingly, given the terrible state of the British economy at present, bankruptcies towards the end of 2008 hit a record high.
Figures released from the Insolvency Service show how:
- During 2008, 350 people were declared bankrupt in the UK every day
- In the final quarter of 2008, 19,100 people were declared bankrupt – up 22% on the final quarter of the previous year.
- A further 10,000 turned to Individual Voluntary Arrangements (IVAs) to sort out their debt problems
- Thus, the total number of people declared insolvent during the final three months of 2008 was 29,444 – up 18.5% on the previous year
- At present, there are around 110,000 people with IVAs and some 700,000 adhering to other forms of debt management arrangement. Thousands more are struggling to repay their debts as a result of the worsening economic situation, and bankruptcies will increase sharply as unemployment rises
- The Consumer Credit Counselling Service (CCCS) has disclosed that it received more calls to its helpline during the first two weeks of January 2009 than ever before
- 4,607 companies also went into liquidation in the final 3 months of 2008 – a shocking 52% increase on the previous year
- Due to the worsening economy, insolvency practitioners expect to encounter around 158,000 bankruptcies per year for the next couple of years
The UK Insolvency Helpline has just had its busiest period of the year: Richard Sorsky, National Money Advice Coordinator says;
“We are getting 200 to 300 calls a day from people with severe debt problems. By ‘severe’, we mean £20,000 on credit & store cards and other unsecured debts.
Up to three quarters of those calling the UK Insolvency Helpline take the advice given, with more than a third of those being pointed towards either bankruptcy, a debt management plan or IVA, where debts are rescheduled. Other callers opt to re-mortgage or re-schedule their loans – this is becoming increasingly difficult with many lenders withdrawing mortgage products and falling property prices making remortgaging impossible, due to equity disappearing”.
The legal process for going bankrupt may be simple and not carry the stigma it once did, but the implications arising from bankruptcy are wide reaching:
- Once the bankruptcy is passed, your bank accounts will be frozen – the Official Receiver will take charge of your money and property, and when the bankruptcy is discharged (after 12 months), you are technically debt-free
- Declaring yourself bankrupt is a drastic way of becoming debt free, and should only be undertaken if all other solutions have failed
- If you are in employment, the Official Receiver will look at your salary and may take up to 50% of your income to pay off debts – this can last for up to three years
- If you have property, any equity you have in your home will go towards your debts. This may mean having to sell the property or, in the case of joint ownership, you may have to sell your share to your partner or another party
- Even if you do not own your home, any other assets you have will be taken into account
- Although bankruptcy lasts for only one year, a ‘black mark’ remains on your credit file for 6 years, meaning you will find it difficult to get any form of credit, including a mortgage
- You will suffer the indignity of your name appearing in your local newspaper
- Some employers frown upon bankruptcy, such as the police service and the financial sector, with the banks going as far as to consider bankruptcy ‘gross misconduct’, – you could potentially lose your job if you work in this industry and file for bankruptcy.
As can be seen, bankruptcy is not the ‘easy option’ it is often perceived to be. It can be a way out of debt for some, but only when all other options have been exhausted.