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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: 2009 Insolvency figures hide true level of unmanageable debt.

 

The Royal Bank of Scotland causes a right royal stink  

I was incensed to read today that RBS is to pay their staff bonuses in shares that can then be cashed in after just 12 weeks. Apparently this is their way of sidestepping Government policy on the 50% ‘share tax’. 

You and I own 84% of this previously insolvent bank and what voice do you have? None, so I will shout on your behalf. 

There is no way the bonuses should be paid in any shape or form. Instead the money should be added to the balance sheet so that the bank can start lending again to the firms and consumers that they so eagerly threw money at before they got in a mess. 

I often hear from commentators that the bonuses have to be paid to keep ‘key’ staff and that the present employees are irreplaceable. Their argument is that if ‘key’ RBS staff leave then the bank will flounder with a risk of it going under then there will be no bank and the public will lose their money. 

All the banks would argue that they don’t want to pay bonuses to anyone, they pay bonuses to retain good staff so they can remain profitable. 

I argue that you should replace the lot as there are plenty of young talented individuals out there looking for work and would be happy just to receive a decent wage in these troubled times and still do a pretty good job as well. 

There are only so many jobs around for these bankers; once the top slots are filled they will be grateful for anything. 

It is important to note that my disgust is not aimed at the other banks. Whilst I am still not happy with the bonuses they are paying, RBS is different because we control it and have kept it alive.  It’s not the staff’s fault the bank got in to trouble – it was management failings and a culture of greed. 

All this is really irritates me as the bank is lucky to still be in existence. Their business model over the past few years has been flawed evidenced by the fact that they were insolvent and rescued by us, the tax payer. 

It is arguable whether RBS should have been nationalised last year and even more so with the recent revelation that the Bank of England (BoE) bailed out RBS and HBOS with a secretive emergency loan of £61.6bn last autumn, apparently to prevent loss of confidence with the financial system. This was probably the best time to have gone for full nationalisation; we didn’t and now look at how the bank says thanks. 

If the consumer/tax payer had not rescued the banks then the board would not be in place nor would the so-called high fliers still have their jobs. RBS staff should be thankful they have work and a regular income which enables them to meet their monthly commitments such as mortgages (subsisised?), food on the table and heating bills, unlike many consumers.   

No-one is irreplaceable.  I feel we should have nationalised the bank and called it the ‘People’s Bank’. Then start in earnest in bringing normality back to those business and consumers that have been stuffed by RBS. 

Read more: The Royal Bank of Scotland causes a right royal stink

 

It is a normal thing for people in financial difficulty to want to stay in their home.  So when faced with repossession, to have a firm or individual buy your home off you so that you can stay there and rent it back and provide stability for the family can be an attractive scenario. 

However in these circumstances it is not uncommon for a house to be sold for between 60 and 80 % of its true value and  I know the purchaser is taking a risk, but come on, be fair and treat those that are suffering financial difficulty with some honesty and respect. 

I have been approached many times and offered very large commissions to advertise this style of service but am proud to say that I stood my ground and, unlike some, have refused these offers. 

So far only around 80 firms have applied for authorisation under the FSA’s new rules which is a worry about what has happened to the remaining 920 firms of the 1,000 that the OFT thought there were operating in this market.  Are these too scared of regulation, are they the cowboys that needed to be taken out? 

I will wait with interest to see how the regulation goes and re- examine how the schemes are helping distressed mortgage holders. 

We will also see how many sales will have taken place from June 30th this year which will have a bearing on the house repossession figures. 

I have always argued that these sales have never shown up on the CML data and believe we could have had as many as 25,000 homes sold this way throughout 2009 alone. Add this to the CML predicted 48,000 homes for the same period and we are looking at a total of 73,000, pretty darn close to the 76,000 figure in 1991, when the schemes were not available. 

Add to this those repossession figures from 2nd charge holders, like secured loans, again which do not feature in the CML stats and I would argue we are above the 1991 level!

In any event I applaud the moves by the OFT and FSA for bringing clarity to this issue and support to the consumer facing repossession. 

The key points of the new rules and what consumers need to do if they find a firm unregulated can be found in our article FSA gets tough with 'sale and rent back' schemes.

Fraudsters target tens of thousand UK tax payers offering false tax rebates

With 9 million people expected to file their tax returns on-line the potential of this scam is huge. I believe we will hear of thousands of consumers being duped into giving away details for their bank accounts and credit cards.

What will simply happen to those that do is they will have their bank accounts emptied or their credit card will get red hot though unauthorised use. 

Read more: Why 'sale and rent back' schemes needed regulating & Fraudsters target tens of thousands tax...

 

Have you lived the lifestyle of your dreams but not within your means? 

I wonder how many people are wishing they had not done just that as their credit card bill hits the doormat with a thud. Well it’s too late now and for some their excesses over the past couple of months have come home to roost. 

Many debt-help firms cite today the 20thof January as probably the Consumer’s darkest day of the year. Just prior to this most credit card providers would have sent out their bills and for those that, shall we say, may have over indulged a little in the run up to Christmas, they will not hold good news 

According to Credit Action, consumers make around 21.9m plastic card purchase transactions every day with a total value of £1.05bn. Another startling figure is that the proportion of credit card balances bearing interest was 73.6% in July 2009. 

For some people opening the bill there will be a reality check but for many there will also be a feeling of desperation as they know they will be unable to clear the balance. Okay, pay the minimum repayment you say. But just read on to see how long it takes to clear a credit card bill of £2,000 at an interest rate of 17.2% and a minimum payment of £29. A whopping 26 years and 2 months according to the ‘thisismoney’ calculator! 

Others will just continue to borrow on other cards or move their balances to a 0% provider and rack up still further debt. Some will plunge further into their overdrafts until they finally show the white flag and surrender. 

Will a 0% credit card balance transfer solve my debt problems? 

Not necessarily and I would urge you to heed this warning. Once you move balances from an old credit card lender to a new credit card provider in an attempt to sort out your debt and you again get into trouble, then the new lender may not support you if you later decide to propose an Individual Voluntary Arrangement,( IVA) or Debt Management Plan, (DMP). 

The reason for this is simple; as they have only just advanced the money as a new lender they require payment as per their agreed terms. Had you sought professional advice with your debts before moving to the new 0% balance transfer then the chances of your credit card company supporting any debt option would be much greater.  

Without knowing the full picture it is plainly irresponsible for anyone to suggest, ‘move your credit card balance to a 0% lender to solve your debt problems’. You have been warned! 

Okay, I don’t need help with my debts, I just need to move my existing balance to a better deal. What’s the problem with that? 

Read more: Have you lived the lifestyle of your dreams but not within your means?

 

One million people have paid their mortgage or rent using a credit card in the past 12 months.

Recent research by Shelter threw up a shocking statistic; one million householders have used their credit cards to pay their mortgage or rent over the past 12 months. This represents 6% of all the homes in the UK, and one in 12 Londoners.

At a time when the government is offering several schemes to help people keep a roof over their heads, the fact that so many people are resorting to using credit cards, often paying around 19% interest, to meet their financial commitments is total madness.

According to Shelter, the problem is affecting all social groups, from those on low incomes to the middle class and other more affluent households.

People who resort to paying the mortgage or rent on plastic are desperate to ward off the threat of repossession – but, in fact, they could be putting their homes further at risk by doing so.

This is because credit card providers can apply to the County Court to have the credit card debt secured on the property if the borrower falls behind with repayments. Therefore, failing to pay your credit card bill could end up with your providers forcing you to sell your home so it can recover its money.

Mortgage lenders have agreed to work with borrowers to ensure that repossession is a last resort for most people, so if you are concerned about paying the mortgage, the lender should be your first port of call.

Be completely honest about your financial situation and see what options are available to help you cope.

All mortgages taken out on or after 31 October 2004 are regulated by the Financial Services Authority, so lenders are obliged to treat you fairly and send you regular statements to keep you informed about your current arrears position. There are also rules covering what the lender must do if it intends to repossess your home - see the FSA website for more information.

There are also three government schemes that could help people who fall behind on their mortgage payments. These are:

1. Mortgage Rescue Scheme
2. Homeowners Mortgage Support
3. Support for Mortgage Interest

You can find out more about these schemes on the DirectGov website, and from organisations such as Shelter and Citizens Advice.

I’m behind with my rent...

If your rent is not paid, the money owed is called 'rent arrears'. Rent arrears are 'priority debts', which means the consequences of not dealing with them are serious - there is a risk of eviction.

Read more about what rights renters have against repossession

Read more: The dangers of paying the mortgage with plastic

 

Poundland   

Sales are at an all time high with consumers spending around 50 million pounds last year in Poundland; an increase of 21%. 

Many think the goods being sold are cheap and of poor quality. What if I were to tell you that often these goods are purchased from liquated companies, firms which have gone bust, like Woolworths?

They also get goods from shops that are unable to clear everything in their clearance sale. Some Poundland suppliers will also offer special deals to move large quantities of goods and of course there is good old China

Poundland sell around 3,000 everyday product lines across 16 categories and 1,000 brands such as Colgate toothpaste, Kodak batteries and Walkers crisps. 

Members of my family go to Poundland and similar shops to buy bird food for around £3 as against £10 in the shop next door. 

This type of shop is not everyone’s favourite as was seen in Gloucestershire last August when around a thousand people signed an on-line petition to oppose the opening of such a store. 

Shops selling goods for under a pound are here to stay and will get busier as consumers continue to feel the pinch with the current downturn in the economy. 

My wife, Mrs DebtWitch, goes to this type of shop and saves us around £25 pcm on items including bird seed. 

Ever see me in one? Just look for the chap with dark glasses and collar up trying not to look embarrassed.

Click on Listen now to hear my contribution to the show on BBC Radio Wales - phone-in about 'Would you shop at Poundland?' 

Read more: Mrs DebtWitch shops in Poundland

 

Debt clinic with James Max on LBC on Sunday 10th January. 

This is the third time James and I have done a ‘Debt clinic for Londoners’ and it was amazing the topics we got through in the hour-long show. 

These are the ones that we managed to get through; 

Zak had debts of £13,000 and we spoke about the options of a Debt Relief Order (DRO) or bankruptcy and went through how these work. Next call was Paolo who was looking for advice on where to find a new bank account after going bankrupt. 

Dave from Chingford was next and he called the show to say he was concerned about a friend who was asking him about bankruptcy. Dave did not know how to respond as he did not understand the procedure. I explained how it works but stressed that all cases must be looked at on their merits and what fits for one person may not apply to another. 

Kate then called and wanted to understand more about Debt Consolidation Loans (DCL). I gave one example of a situation when a DCL was appropriate and one when not. 

Mark then dialled up and said that he was in an Individual Voluntary Arrangement (IVA) that had now ended but was being chased for a debt that he was sure was included in the IVA. I gave him advice on what to do explaining that the debt recovery company can no longer pursue the debt if it was previously part of the completed IVA. Mark was referred back to the firm that handled his IVA so that they can write to the recovery agents. Simple really once you know but worrying for Mark, now he is a lot happier. 

Next up was Simon calling from the Dominican Republic, who was worried about where he stood on debts in the UK on which he had not paid anything since 2003. I covered the Limitation Act and how unsecured debts can be statute barred after six years if no payment or acknowledgement has been made during that time. 

Ismail telephoned as he needed advice on how to improve his credit rating as he was recently refused a loan. 

Alan from Ilford wanted advice as he had lent a friend £20,000 but it looked like he was not going to get his money back and wanted to know where he stood. Basically he is the same as a credit card provider or a bank that had given a personal loan. If the friend is made bankrupt then Alan will get the same dividend payment, if any, as the banks. The way to protect your money is to secure a charge on the person’s property, if owned; more advice was given on the show about this. 

Wendy then asked how to help her son who was being taken to court for a county court judgment by a lender for the sum of £4,000. Wendy was advised to go to court with her son as in his absence the court could make an unrealistic order of payment which could make matters worse. Wendy was advised to make the court aware of his other debts and expenditure commitments against his income. 

Read more: LBC debt clinic for Londoners

 

At the end of last year, I wrote a blog on claims management companies, and mentioned a legal loophole that allows people to write off their debts.

At the time, the issue was the subject of a court case hearing in Manchester High Court. This centered on whether consumers should have to pay their debts if the lender fails to produce an original agreement within a certain time limit.

The Court has now reached a decision, ruling that lenders only need to provide a ‘reconstituted’ copy of the original loan agreement. The decision means that the absence of a copy of a signed executed agreement is not evidence that such an agreement was not made.

The case has set a precedent for an estimated 150,000 cases currently sitting in other courts around the country. In the majority of theses cases, consumers were trying to avoid payment of their credit card and loans on the grounds that the bank had either lost or destroyed the original signed agreements.

Claims management companies representing consumers have previously argued that if no agreement is produced then the debt is unenforceable – this has understandably led to disputes between lenders and customers about what constitutes a ‘true copy’.

Previous High Court ruling

A previous High Court ruling in London ruled that borrowers could still be held liable for their debts even if bank cannot produce a copy of the original agreement.

The judge decreed that claimants should not stop paying back their loans or credit cards while the claim was ongoing, as the loan may become fully enforceable in future.

Any non-payment could be recorded on the claimant’s credit files - which would not breach data protection law.

Read more: Legal loophole partially closed

 

Had a very rewarding morning at the BBC studios with Radio 5 Live on Tuesday 29th December.

My part on the show was billed as a 'Festive Finances Surgery', starting with debt, with; savings and pensions issues to be covered over the next few days.

Presenter Andrew Verity and I discussed several topics including student loans, the importance of budgeting touching on debt options such as debt management plans, IVAs and bankruptcy. We also went through examples of situations when not to go bankrupt, and how, in certain circumstances, if you did, you can still keep your home, if owned. 

After the show I had many calls about unsecured debts, (i.e. credit cards, personal loans, store cards and overdrafts) and by the end of the 29th listeners had sought advice on a total of nearly half a million pounds worth of debt.

One of the text messages that came into the show was from a listener who was concerned that I was sending out the message that bankruptcy was easy and that this gives the wrong impression to the younger generation.

This was not my intent at all and I thought I made my point quite clear on the show. My  approach is that bankruptcy should be seen as a last resort, when all other options are not viable either through lack of funds to offer lenders, for example in an Individual Voluntary Arrangement (IVA) or debt management plan.

Unfortunately it is common across the industry to hear of consumers with serious financial problems being talked into long term debt repayments by debt management companies (DMPs) because this generates large fees for the adviser. In a DMP the borrower has no legal protection or debt relief (i.e. have some of the debt written off).

Read more: Radio 5 Live 'Festive Finances Surgery' & bankruptcy

 

What next for bank charge claimants? 

The OFT have decided, after considering the recent judgment on bank charges, not to pursue its investigation into the  fairness of current unarranged overdraft charging terms. This news will be very disappointing for many thousands of consumers who were looking for guidance from the regulator in the hope that they would continue the test case, perhaps under different case law. 

Sadly this really looks like the end for the vast majority of those that had claims sitting in the courts and for the few that had not yet submitted claims awaiting the outcome.  

This episode has just confirmed that the UK’s consumer laws need beefing up. Although the regulator believes the way consumers have been dealt with by the banks is unfair they now have very little power to do anything about it.  

Some campaigners however are claiming that there may be a new line to pursue under s140 of the Consumer Credit Act which covers the relationship between the lender and the customer and which must be fair.  

Under s140 it is for the banks to prove charges are fair rather than customers to prove they're not.  I expect whether this is a possible way forward will become clearer over the coming weeks.  

Outlook for claimants

So what do you do if you have a complaint about bank charges? Basically the same as you did before the ill fated OFT test case.  

Read more: What now for consumers after OFT pulls out of the bank charges test case?

 

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