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A guest blog by Emma Bryn-Jones

For those who feel that free advice may not be for them, it is important to be sure of a reputable company that sets and sticks to professional standards. But where are they?

Emma Bryn-Jones reports on her day at the annual DRF Conference. The Debt Resolution Forum is one of two professional associations for debt management companies (the other is DEMSA), and has been opening its doors to the wider communities of advice, collections and insolvency practice for some time.

The Office of Fair Trading were there, The Insolvency Service, the Money Advice Liaison Group, the Money Advice Trust, Advice UK, DEMSA board members, countless banks, collections agencies, insolvency practitioners, technology specialists and a room full of professional debt management companies.

You’d be forgiven for thinking there’d be a show-down - money-grabbers brought to heel, so to speak. But the DRF were having none of it, for here was a group of people so far beyond basic housekeeping that their conference oozed hope and a new era of transparency and co-operation.

Perhaps, like so many British companies, commercial debt professionals are realizing that corporate social responsibility is so much more than a list of charities to which they donate, and are putting the relationship back into relationship marketing. We should hear them out, at least.

When the Insolvency Service talked openly about working within a remit for small government, there were parallels with the not-for-profit forums I've attended – how do we work smarter, achieve more for less and if the government will not legislate, are we able to self-regulate towards a common protocol?

The Debt Advisor even suggested sharing investments in new technology with the free to client sector. Who’d have thought that a fee charger would want to help those uncertain of funding? And with not a mainstream journalist in sight, it was hard not to believe the offer was genuine.

When collections agencies complained about up-front fees, there was a kerfuffle – livelihoods depend on this – and I guess if you accept that free or paid, every advisor needs a salary, you can see why. Even so, talk of alternative payments ensued, a desire to offer the best deal, clearly genuine.

With consumer interests to the fore, DebtWizard questioned how debts are sold on for a fraction of their value, yet debtors are still chased for the full amount. You’d have thought this would send the creditors and collectors packing, but far from it - an ethos of collaboration transfixed the room.

I found my own prejudices challenged. Nottingham based AMS Debt Doctor is direct and outspoken, fiercely defensive and, for some, a little too ready to question the status quo. They have just signed up to a comprehensive programme of the Edexcel CertDR training, showing commitment to a recognisable standard.

On my journey home with the DRF Adviser of the Year, I was struck how a hairy rocker could talk so eloquently and passionately about customer service. I understood why it felt a bit like a vicar winning the Church raffle, when Cleardebt’s own David Mond presented his employee with this prize. Even industry leader, Paymex, laughed off the odd jibe.

Of course, grumbles emerged. People who have invested heavily in an ideology or a business model will always be fiercely protective of their achievements. It will take time before we see the fee chargers and free providers agree a level playing field, but there is most certainly hope that the OFT’s vision of transparency is coming.

So where does this leave the consumer? Far from the melodrama of boo to the baddies and hurrah for the good, the days of charlatan barbers hacking off pounds of flesh to recover your debts are numbered. Yes, there are scam artists, who thrive on the immediacy of the Internet, and we may never catch them all, but by working smart, we may not have to.

As dialogue progresses, expect to see common principles, new technologies, specialist niches, social enterprise, free to fee hybrids and joint initiatives to tackle social exclusion. Look out for organisations that subscribe to the high standards set out by the Money Advice TrustR3, the DRF and DEMSA and if they ain’t listed, don’t go there.

Emma Bryn-Jones, Zero-credit Founder and Business Development Director

Emma founded Zero-credit in June 2009, whilst working part-time as a teacher. Her experience spans over a decade in international research followed by another in education. She has gained the trust and respect of leading industry, public and third sector organisations.  Zero-credit


Mike Thomas was also present at the conference, those twitterers among us can search under #debtdebate

 

Read more: Debt management never looked so good

 

We all know that debt help charities have an important role in helping over-indebted consumers resolve their debt issues. However, there must now be serious concern about their future levels of service as they begin to suffer a serious lack of funding. The Citizens Advice Bureau, which is funded through local authorities, is seeing on average just over 9,000 new debt enquiries every working day, that’s before their funding cut.

Citizens Advice Bureau started life as an emergency war service. World War II was declared on 3 September 1939 and the first 200 bureaux opened their doors the very next day.

The people that work for the CAB

Of the 26,000 people who work in the service, 20,000 are volunteers, all from different backgrounds with different skills. They perform a variety of roles from giving advice to fundraising, IT, administration, publicity, local campaigning and trusteeship.

To find your nearest CAB office just click on the following link and enter your postcode Citizens Advice Bureau office locator.

It is believed that there were around four million debt enquiries to the debt charities and commercial firms from over-indebted consumers during 2009 of which some would have been multiple applications and this figure is expected to climb further over the next two years.

Although it’s difficult to be exact, many experts believe that the free sector of the debt advice industry can only handle nearer the two million new debt enquiries per year, surely that figure will now have to be revised.

So where does this leave the consumer that needs to get help and advice on their debts? It is predicted that many more will now have to go to the commercial sector.

Is that a bad thing? It’s arguable that if it wasn’t for the fee charging commercial sector then the debt charities would have collapsed under the volume of enquiries several years ago.

Over the past 15 years or so this country's economy has been fuelled by consumer borrowing. Morally and socially we have been encouraged to spend and pay later through slick marketing and the easy availability of credit and from this we have developed a culture of 'must have now'.

Successive governments have encouraged consumer spending so government should reinstate reasonable levels of funding to ensure that the charitable sector can operate properly for those that choose it.

It looks though as if debt service, not advice, is going the way of private education and health insurance - you will have a choice, either go to a debt charity and be prepared to wait a while or go to a fee charging firm for the extra service it provides.

The debt service industry is improving rapidly however, with debt advice firms registering with the two trade bodies, DEMSA and DRF. Any debt advice agency/firm that is not registered with either of these should be avoided at all costs.

In debt and don't know what to do?

Most consumers are underprepared when they hit a debt crisis and this can lead to harassment and bullying from the debt collector. We show you how to keep control, detail your consumer rights, where to go for free debt advice, when to contact the lender and who to pay first. Go to Debt Survival Kit

Need to know who to contact with debt issues then go to our list of contact details of organisations that will help you free of charge. Helpful Organisations

Read more: How will the CAB cope with funding cuts?

 

H M Government e-petition link

I am well aware of some people’s views on  consumers who are in financial difficulty,” it’s their own fault, they could have said no and they are responsible for their own demise” then they boast, “I have  a current account, why should they be entitled to have one if they can’t be trusted with money?”

Few people run up debts with the sole intention of not repaying them. For the average consumer their fall is usually a result of an unexpected trigger such as a relationship breakdown, illness, an unexpected job loss or a similar life-changing experience.

A culture of ‘must have now’

Let’s not forget that as a result of slick marketing, the easy availability of credit and previous governments’ encouragement of consumer borrowing to fuel the economy, the past 15 years or so has seen the development of a culture of ‘must have now’.  With millions of consumers now stuck with unmanageable debt what help are they getting from some of the major banks and the previous government?

Unless you’ve been through a torrid time with your finances you can only begin to imagine the stress, trauma and anguish people go through when confronted with debt collectors, solicitors and bailiffs. Then, having to open a bank account with an institution they do not owe money to can be a demoralising, and difficult thing to do, especially for someone depressed and anxious to take control of their finances and make a fresh start.

Once they have managed to do this, RBS basic account holders now find they are restricted as to where they can draw out cash, being only allowed to get free withdrawals from the bank’s own ATM, basically being penalised for not being credit worthy because they don’t have a current account.

It’s not just the RBS punishing consumers

As well as the RBS, Lloyds and other banks have been tightening the screws, with the Nationwide Building Society last year telling customer with cash card accounts that they would have to take out a minimum of £100 if they used the counter service in its branches and HSBC basic account holders only being able to withdraw cash at the counter, though they can make other transactions.

It doesn’t wash with me that basic bank accounts cost money to run and are not a cost effective option for the banks. It works well enough for the Co-op bank about which I have heard good reports of their sympathetic and supportive approach to consumers who wish to open such an account.

So now is the time to support those that have had money woes and put them on an equal footing with the rest of society and not restrict the locations where they can withdraw money free of charge. Not every consumer lives in a High Street with a choice of ATMs. Those that live in the countryside may have to drive many miles just to get access to that free cash machine.

Many consumers with unmanageable debts actually rebuild their financial situation over time and begin to again contribute to our society through tax and national insurance contributions. People in debt are not to be treated as pariahs of society, since when was it a crime to be in debt? How about 141 years ago!

If you need to open a basic bank account and are worried that you may be refused then take a look at our list of banks and building societies which offer basic bank accounts. We also detail what will bar you from opening an account as well as what services you can expect to get from them.

Read more: Government owned RBS punishing basic account holders

Reverse the decision of RBS to restrict cash machine access by its basic bank account holders sign the H M Government e-petition

 

 

Read more: Government needs to get RBS to re-think its policy on basic account holders

 

The debt collection regulator Office of Fair Trading (OFT) has issued related "minded to revoke" (MTR) notices to Roxburghe, HFO Services Ltd and HFO Capital Ltd, all of which are trading names of HFO Services, on 20 May.

If you log on to www.roxburghe.com you will see that they state, in a very prominent position, that they were ‘Consumer debt collector of the year 2009’.

To balance things out why don’t they add the following? ‘We have been issued with a ‘Minded to refuse/revoke licence’. That to me is just as important as the other statement!

They also have a section on their website under the heading of -

The real difference is people;

It states;-

What makes Roxburghe truly stand out from traditional debt recovery agencies is the diligence we apply to training and developing our personnel. This is how we ensure that all your debtors will be dealt with sensitively, according to their situation.

All Roxburghe staff are encouraged and equipped to help our clients and their debtors achieve a positive outcome.

I just wonder how this statement stands scrutiny in the light of the OFT’s action.

Has action by Roxburghe, HFO Services Ltd and HFO Capital Ltd affected you?

If you have been affected by any of the above firms and wish to furnish information to the OFT to help them decide whether they are fit and proper to hold their licence to trade then write to the OFT as the address below. Make sure to add the following in the heading of the letter or at the beginning of the OFT address;

Information re HFO/Roxburgh Licence

Enquiries and Reporting Centre
Office of Fair Trading
Fleetbank House
2-6 Salisbury Square
London
EC4Y 8JX.

Minded to refuse/revoke a licence

Where there are substantiated doubts about a trader's fitness to operate, the OFT issues a 'Minded to Refuse' or 'Minded to Revoke' Notice (MTR).

This is a formal notice advising the applicant or licensee that the OFT is minded to refuse to grant them a licence or is minded to revoke their existing licence. It invites them to make representations to an independent OFT adjudicator who will make a decision on the case.

The trader retains their licence until the adjudication process and any subsequent appeal is concluded.

It's not a crime to be in debt

Many individuals who are in debt are often subject to unnecessary harassment by lenders so it is important that they know their rights and how to deal with overzealous debt collection agencies.

Just remember it is not a crime to be in debt so ensure you are treated with respect. The last debtor’s prison was shut in 1869 and society has moved on somewhat.

Below we have two links which will help you understand your consumer rights;

Office of Fair Trading (OFT) Debt Collection Guidelines


How to stop creditor harassment + template letters

We explain what is harassment, what you can do if you feel you are being harassed, what legislation is out there to help you and we also offer two template letters to send to the 'harassing' debt collection agency/lender.

Harassment Letter 1 - This letter is designed to send to the lender or Debt Collecting Agency (DCA) pursuing you for a debt you do not owe or is in dispute.

Harassment Letter 2 - This letter is designed to send to the lender or Debt Collection Agency (DCA) to stop harassment, in whatever form.

View harassment and template letters

Read more: In 2009 they were 'Consumer debt collector of year', in 2011 they could lose their licence.

 

A spat has broken out between Richard Banks the CEO of UK Asset resolution (UKAR), the fifth largest mortgage lender in the UK, and Gillian Guy, Chief Executive of the Citizens Advice Bureau.

In an interview with The Guardian newspaper last week, Mr Banks remarked that the last government's kneejerk reaction to pleas for lenders to keep families in their homes during the 2008 financial crisis when they could no longer afford the mortgage repayments, was forcing some homeowners further into debt. He said ‘’We face a raft of home repossessions as soon as interest rates start to rise. It's a tough love approach. It's treating customers fairly, not nicely, because if you can't afford your mortgage you are only increasing your indebtedness. If we allow you to increase your indebtedness, that's not really fair to you."

However, Gillian Guy responded saying “Encouraging forbearance is absolutely right and necessary with the current levels of unemployment and the other economic challenges people are facing. A policy of ‘tough love’ would be short-sighted and unhelpful.

When lenders were not treating people fairly and failing to show forbearance, repossession proceedings were started when people were only a couple of months in arrears. Since then lenders have done a good job with those customers facing difficulties but we are now starting to see poor practice creep back in.” Read more on this here.

I agree up to a point with Gillian Guy. In the past, lenders were too quick off the starting blocks and enforcing repossession proceedings when the mortgage holder was only two payments in arrears. Forbearance has helped some house owners to recover control of their finances and get back on track with their mortgage payments. Without this support it would have meant repossession.

Not if but when interest rates increase

However I agree with Richard Banks in that when it is obvious that the mortgage holder cannot service the mortgage and the arrears and interest are climbing out of control and piling up on the debt, then yes, repossess and take the misery and stress of an ever increasing debt burden away from the house owner. I share his concern that not if, but when interest rates rise to combat inflation, we will see a surge of repossessions over the following 18 months – 2 years as house holders’ mortgage repayments undoubtedly increase.

The real worry: what happens AFTER repossession?

Many of those whose homes are repossessed often have a mortgage shortfall (the difference between the amount realised at the sale of the property and the amount of mortgage, arrears and interest outstanding) running into tens of thousands of pounds. Added to this shortfall can be the cost of the locksmith, gardener, window cleaner, legal fees as well as the interest on the debt!

Those who have had their property repossessed often believe the debt has gone away because they have not heard from the lender for many years. However lenders have 12 years from the date of the last acknowledgement or payment on the debt to start chasing it. It simply will not just fade away!

Read more on the time limits to recover here - House repossession debt / mortgage shortfall claims

Where to get help

Anyone struggling to meet their mortgage repayments, or worried that they might have difficulties in the future, can get free independent advice from their local CAB. The earlier you seek advice the greater chance you have of staying in your home.

The Bureaux has helped with 103,487 mortgages and secured loan arrears problems between April 2010 and March 2011. Find my nearest CAB office

Also see our list of 'Helpful organisations which include all the major debt charities'

Read more: Are we being too kind to those with unmanageable mortgage arrears?

 

Congratulations to Which? for entering their super complaint to the OFT and putting a stop to this blatant daylight robbery of consumers when making debit or credit card payments for air travel.

The amount involved is not peanuts as the OFT estimates that UK consumers spent £300 million on payment surcharges during 2009!

It is well documented that the cost to the travel company of processing  a debit card transaction is between 10 and 20p so how can retailers, and travel companies in particular, justify charging £8 for doing this?

The cost of a credit card charge to a retailer is calculated as a percentage of the value.  Which? believe the real cost of processing a credit card transaction is no more than two percent of the value of the purchase. Travel companies often base the charge on a fixed value, irrespective of the actual cost of the fare, which can lead to you paying more than the true cost.

Airline security prevents paying by cash

Due to tighter security regulations, airline passengers are not permitted to pay for travel using cash because the use of plastic enables security forces to keep tabs on passengers, an important tool in combatting terrorism.

With that knowledge it’s not surprising that airlines are able to exploit passengers by making up their own minds as to what they can charge for a transaction.

Which? also called for the travel companies to make it clearer at the beginning of the transaction what the additional charges are rather than  several pages later or sometimes, only when the consumer is about to complete the payment transaction.

My concern is that these profiteering companies will look at other ways to mug the consumer (sorry, recoup money). Like the banks, they have got used to inflated profits at the consumers’ expense, so inevitably they will seek other ways to fill their coffers.

Hopefully the government will agree to the OFT’s request to change the law to prohibit surcharging for all debit cards, bringing long term certainty for consumers and business.

All we need is transparency, a word I fail to hear in the airlines’ vocabulary.

You can read the Which? report here, Consumer victory as OFT uphold Which? super complaint

Read more: Transparency is a dirty word in the airline industry

 

So we’re off again with house repossession figures and the Council of Mortgage Lenders (CML) releasing the year’s first three months figures. Each time they do this I get on my box - I have to as no-one else raises the same concerns about the truth behind these numbers.

Are you one of the many being fooled into thinking that just because the CML are forecasting that around 40,000 homes will be repossessed by mortgage lenders by the end of this year that things are nowhere near as bad as in the 90s when over 75,000 homes were repossessed in one year alone?

Let’s cut to the chase; although the statistics are collected correctly by the CML, in my humble opinion they do not accurately reflect current market conditions and account for other factors which come into play, making the situation far different from how it appears. Here are my thoughts.

The impact of ‘Sale and Rent Back’ Schemes

The first area to look at is the number of homes being sold by families to private landlords under 'Sale and Rent back’ (SAR) schemes, or flash sales. These schemes weren’t around in 1991 at the height of the last repossession crisis when around 75,500 homes were repossessed.

Back in October 2008 The Office of Fair Trading (OFT) said, ‘It is likely that there are upwards of 1,000 firms, together with an unknown number of non-professional landlords, who have conducted about 50,000 transactions to date’.  That’s three years ago!

So do we know how many homes last year or this year that has been or will be sold under the SAR scheme in order to avoid repossession and which therefore not appear on the CML register?

Only first charge holders are recorded in the figures

Another damning factor is that the CML do not record second charge holders. These are lenders with secured loans on the property but the CML only record first charge holders, the main mortgage. Why?

CML uses old data to make the repossession figures

Another point to look at is that the data put out by the CML is technically out of date as they can only record repossessions that were finalised during the year.

It can take between 6 and 12 months to have a home repossessed, even longer now with the introduction of various government backed schemes (see below) and these latest figures for 2011 are based upon householders who experienced financial difficulty up to almost a year ago.

So all those home owners who are missing the first payment this month and can no longer meet their mortgage payment, in theory will not surface or appear on the CML register until possibly next year!

Government backed scheme

The Mortgage Pre-action Protocol, which commenced back in 2008, is one example of a government backed scheme, which could be a delaying factor in eventual repossession for some home owners, just postponing the inevitable and adding further debt and eventual repossession through deferred payments.

Credit card and redundancy payers

There are an estimated one million people using their credit cards to meet their current mortgage commitments. Wow! And don’t forget those who are using their lump sum from redundancy as well.

Historic low interest rates since March 2009

Many households would have had their homes repossessed if Bank of England  interest rates were at the same levels as  in 1991 (Feb 13% dropping to 10.5% by Sept) at the height of repossession figures  compared to the current  28 consecutive month run of the Bank Rate being at  0.5%.

How many mortgage holders are there on Tracker and Standard Variable Rates (SVRs) paying around a third of what normal payments would be because of the current 0.5% Bank of England rate?

How many are twitching every time the Monetary Policy Committee meets to decide whether rates should go up?  More to the point, where would the housing market be if we had interest rates comparable to those back in 1991?

Through all this there is a positive side however. Some house owners are paying over the top each month in order to get their mortgages down and so they will not be complaining. Are you one of those or are you a twitcher?

Read article and further stats House repossessions rise 15% (260 words)

Read more: The hidden truth behind the latest house repossession figures

 

The BBC recently reported a 40% increase in the number of prescriptions being prescribed for anti-depressant drugs such as Prozac over the past four years, with GPs and charities saying they were being contacted increasingly by people struggling with job worries and the guilt of debt. Money woes 'linked to rise in depression'.

In my experience the majority of consumers who end up in financial difficulty have previously been able to meet their commitments until a trigger such as unemployment, a breakdown in a relationship or illness occurs.

For some it is just too much to recover from and they end up being plagued by debt collectors who harass them into paying monies they do not have. They then become ill, depressed and can turn to alcohol, gambling or even crime. Their debt problems can also impact on their relationships, their friends and their work. What support do we offer these people? Not a lot. The stigma of unmanageable debt is rife within our society.

Until recently we used to advertise bankrupts’ names in the local papers but thankfully, from April last year, this stopped. This change in policy was not just taken to help protect bankrupts but instead was a cost cutting exercise, saving the cost of placing adverts in the papers!

We still put the names, occupations and home addresses of insolvents (those consumers going bankrupt, proposing Individual Voluntary Arrangements, IVAs, or debt relief orders, DROs) on a public register and then bar them from having bank accounts and future credit. What further compounds the matter is that we are fast moving towards a cashless society and these people need bank accounts and access to plastic to function.

All this makes it harder for those who have been through financial difficulties as they can’t pay by direct debit, receive wages electronically or use the internet for purchases if they don’t have a debit card.

The banking industry isn’t helping matters either. Only 2 out of 17 banks seem prepared to offer bankrupts a bank account and they also find credit facilities difficult to come by or denied. It’s no wonder then that people find it hard to get back on their feet and get depressed!

Are we sowing the seeds of unrest by making these people feel like outcasts in society? Isn’t it about time we started to support and help them manage and rebuild their lives instead of ostracising them?

Read more: The stigma of debt is still rife within our society

 

The main criticism of a Debt Relief Order (DRO) is that once it is granted there is no incentive for the individual to find employment because the eligibility rules for DROs require a person to disclose if their circumstances and or income change over the 12 month period the order is in force.

Imagine someone who is 10 months into a 12 month DRO who succeeds in getting a job or substantial pay rise. Under the rules the additional income may result in them being no longer eligible and the DRO may be revoked. If the DRO were then to fail then they may only have sufficient money to pay priority creditors such as rent and utilities but not the lenders that previously featured in the DRO.

Approved pensions now allowed in DROs.

Before the 6th April if a debtor had a pension fund to the value of more than £300 then they were automatically prevented from applying for a DRO. The government has now confirmed that from this date struggling debtors who would otherwise have met the qualifying criteria for a DRO but for their pension will no longer be barred from proposing a Debt Relief Order (DRO).

What is an approved pension?

For the purposes of the DRO an approved pension is one defined under Section 11 (2) of the Welfare Reform and Pensions Act 1999. This means that the majority of occupational and personal pension schemes will now be accepted.

Pensions barred one in eight applicants

Although difficult to quantify, initial estimates suggest that as many as one in eight people who met all other eligibility criteria for a DRO were unable to access the regime because they had a small pension fund in excess of £300.

DRO qualifying criteria

Not all over- indulged consumers will qualify for a DRO as first they must have unsecured debts below £15,000, their disposable income must be less than £50 per month and their assets valued at less than £300.

The DRO is designed to place the least complicated debt discharge cases on a fast-track bankruptcy through the court system with no personal appearance at court required. They are filed on-line by an approved intermediary, usually the CAB for a fee of £90 as against the new consumer bankruptcy fee due in April of this year of £675.

Personally, I would like to see the qualifying criteria changed to widen the appeal to many other desperate and vulnerable consumers who would otherwise be rejected.

My recommendations would be to;

  • increase the assets amount to around £3,000
  • include  homeowners that are in negative equity
  • double the car value amount to £2,000
  • increase  the disposable income level to £100
  • Increase the debt level to £25,000

However, addressing these areas would make many more desperate consumers eligible and push up the insolvency figures even further. No government wants that on their books, do they!

Read more on Debt Relief Orders

Read more: As major changes with Debt Relief Orders come into effect today there is still the issue of them...

 

This coalition government certainly knows how to kick you hard where it hurts. If the threat of unemployment, wage freeze or pay cut and extortionate fuel prices hanging over your head wasn’t enough then how about Her Majesty’s Court Service (HMRC) increasing the bankruptcy court fee by £25 to £175.

In March 2010 the cost of going bankrupt stood at £510. Now, just 13 months later consumers will have to find £625, that’s the Court fee plus the Insolvency Service fee of £450, an increase of £115 in just over a year.

So where is anyone with no money who has been advised to go bankrupt because they cannot pay into an Individual Voluntary Arrangement (IVA) or debt management program, going to find £625?  When insolvencies are running at the highest level since records began in 1960, this has just got to be insane. Where is the caring Government that professes to help and support the consumer?

We need urgent and decisive action to help clear the ‘log jam’ of individuals caught in the limbo of being unable to take to deal with their debt situation. Instead of increasing the fee reduce it so that more can take the bankruptcy route to end their misery. I know Debt Relief Orders (DROs) are an option for some but the qualifying criteria excludes most consumers in difficulty.

Any fee reduction obviously has cost implications but it would be welcomed by me and the debt counselling profession in general and demonstrate a positive commitment to a vulnerable element of society.

According to the Insolvency Service back in May 2009, a bankruptcy cost on average £1,715 to administer, part of which is met from current fee. The Insolvency Service told me that ‘If the Official Receiver’s deposit were to be waived in its entirety, all the costs of case administration would have to be met from other sources, in particular the tax payer and creditor.’

I don’t believe tax payers would need to foot the bill of reduced fees because bankrupts actually do contribute to the cost of administering their case.

All bankrupts are assessed to see if they can make any payments under an Income Payment Agreement (IPA) which is a legally binding written agreement between the bankrupt and the Official Receiver. The IPA runs for a period of 36 months, initial payments cover the cost for the administration of the bankruptcy order, after which creditors receive a dividend of the surplus funds.

Between 2007 -2009, 41,170 IPAs and 204 IPOs were implemented. These do not account for the sale of any assets such as vehicles or homes that belonged to the bankrupt, so in fact the Government does actually make quite a bit from bankrupts!

Even more money is made, subject to the timing of the petition, in a well hidden scheme whereby an individual going bankrupt and in receipt of an income receives a ‘NT’ tax code with the tax diverted to the Official Receiver towards administration costs for up to 12 months.

Another important point is that many consumers recover from bankruptcy and rejoin the ranks of tax and NI payers and contribute to the income stream, so it is not all doom and gloom for the PM!

The only blessing is that some consumers may be able to claim a reduction in the fee if they can show financial hardship or if they qualify under the Court rules for claiming a remission.

So let’s cut to the chase; why is it so expensive to go bankrupt? When a consumer does not have the ability to repay their debts and cannot afford to enter into any type of repayment programme through lack of funds why is there so little support?

The last debtor’s prison shut in 1869; that’s 142 years ago. Society, culture and attitudes have moved on!

Read more: Coalition targets bankrupts as court fees rise in April 2011

 

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