baldysblog.co.uk

The other day, the Government through the Ministry of Justice put out a consultation paper – is it just me or does that name ‘MoJ’ have slightly Orwellian overtones, black & white movies, shot in the sewers of Vienna and starring Orson Wells as Jack Straw ? Sorry, I digress anyway, it is proposed that the Insolvency Laws should be changed in order to achieve wondrous things although the cynic in me suspects that any changes are designed for the political benefit of the Government or at least, in the event of a sharp increase in insolvencies, a mitigation of the blame laid upon the Government.

A Very Personal Perspective

My personal interest in this lies with the fact that a few years back and because of my cock up whilst working abroad, I ended up being pursued by the Inland Revenue for back taxes, fines, accumulated interest and as the amount of money was rather large – huge actually in my terms, I decided to declare myself bankrupt.

Now going bankrupt isn’t funny and I certainly didn’t want to do it but, I needed to move on and concentrate on looking after my Parents so, it was the only way to go however, there were some funny moments. The most amusing aspect to me of all this was that if you just waited with this sword of Damocles hanging above you until a creditor applied to make you bankrupt, it would cost you nothing. Declare yourself bankrupt and you have to pay a fee of over £400 or £600 to do so, I can’t quite remember the exact figure but the punch line of “I’m too poor to declare myself bankrupt !” did come to mind.

In fact and as my debts were simple – huge to the Inland Revenue, small amounts on two credit cards, a small bank overdraft plus all my accounts were up to date and as I clearly wasn’t “playing games” in trying to hide or avoid issues, the Insolvency Service were very efficient and I was discharged after just 6 months. As you go through this process there are several meetings you must attend so that you can answer any questions that arise, give explanations and so on. The people I dealt with were very professional but they were not unkind and inevitably, you get some insight into how this all works and how people behave.

Now I’m not writing an autobiography here but what I’ve written so far is to set the scene for my following opinions. I had two credit cards and both with very high “spend limits” in excess of £10k each and yet what I owed on them was relatively modest, it was commented upon which led me to ask why. Apparently I was a rare bird in this regard because the vast majority of people knowing that they are going to go bust before the event, before they finally do, spend right up to their credit limit on anything they’ve got, they ‘max out’ as they say.

Enforcement Restriction Orders – ERO

The idea behind this is that someone who hits financial problems which could be caused by divorce, redundancy or any other sudden (?) change of circumstances, could apply to a Court for an ERO which means that they could stop repaying debts for up to a year. OK but let us now look at the details:

There would be no upper limit on the debts on which a borrower could stop making repayments under the terms of an ERO however the borrower would have to show that they could start to make repayments when the order came to an end and there would be some kind of fee to be paid – like declaring yourself bankrupt perhaps ?

Apparently the interest on borrowers’ debts would, in most cases, continue to accrue during this time but they could not be charged penalty charges or other fees while an order was in force and all enforcement action by creditors would be stopped during the term of the order and payments cease in most cases.

However, not all debts would be included, some would still have to be met such as child maintenance payments, student loan payments, mortgage payments, any fines that they incur. Possibly (most likely), utility bills, rent arrears and council tax may also be excluded.

Passing Laws Like Passing Water

Fortunately we have not reached the stage they have in the US where Amendments and Bills are named after the people who created them but then and come to think of it, as the House of Commons will pass the Bill to turn itself into a Town Hall with all legislation coming from Brussels under the EU Constitution, they will never have the chance. Never-the-less, under Labour and for the past 10 years, in a dying frenzy we have seen a never ending avalanche of pointless legislation of which this proposal is just another example and as ever, totally divorced from reality.

So What Exactly is the Point ?

“To delay payments for a year providing they could show that they could start making payments at the end of it” Now whilst I’m sure that there maybe one or two situations where this may seem feasible, I am certain that this will not apply in anyway to the majority of circumstances and as hope springs eternal in the human breast one might call this proposal “The Micawber Bill”.

If you ask someone facing bankruptcy whether if they had a year holiday from making payments providing they could start doing so at the end of it, the majority would sign up for it. The reality though is that it would merely worsen their situation whilst doing no favours for their creditors either. If a chap had debts of £100,000 then at an annual interest rate of 10%, he will merely have worsened his position by £10,000 by the end of that year and given that the majority of debt will be credit card related, more like £20-30,000 over that time.

If we now look at what payments would likely be excluded, maintenance, student loans, mortgage, rent arrears, council tax, utilities – gas, electric, water, telephone and obviously income tax and national insurance, it becomes perfectly clear that the aim of these proposals are credit card and hire purchase loans only. This being the case, I am afraid that I have no sympathy because it is not just a case of “buyer beware” it is also “lender beware” because in the relentless drive for growth and market share, lending institutions have been reckless in their underwriting and deserve to be punished.

For What It’s Worth

To any debtor I would say to them to first, stop whatever they have been doing in terms of spending then they should look carefully at their situation, examine their options, seek advice and take it. Like being an alcoholic, the cure starts and is 70% made up of admitting publicly what your problem is and following a new path.

If they can, work with their creditors to make revised agreements that they can keep to and the creditor can live with, avoid bankruptcy if possible because “credit scoring” is done by computer programs not human beings so, they will be stuck for credit for 6-7 years and any offered will be at loan shark rates !

On the other hand, life is about living and not just about owning and buying “stuff” so if there is no alternative, “Wash and Go”, go bust because the one certain thing is that it will be 7 + years before you can get into the same mess again and you just might have learned a lesson and be living a better life long before then.