Debt & Bankruptcy Issues in the UK

Scotland will be abolishing student fees while graduates in England are facing debts of £30,000 because of the new £3,000 annual top-up fees according to a recent announcement.

Scotland's education minister, Fiona Hyslop, says the fees prevent young people who come from poor families from going on to college because they fear getting into debt. Scottish students attending universities in Scotland will be able to obtain undergraduate degrees free, however, students from England and Wales will pay £1,700 a year for Scottish studies except medical courses, which will cost £2,700 annually. Degrees from the more prestigious universities such as Edinburgh and St. Andrews will be free for students within the European Union and must be treated the same as students from the local area. Under European law, only a variation within nations is allowed but not between them. Approximately 15,000 students from other parts of the United Kingdom are attending universities in Scotland. Scottish students who choose to study outside of Scotland will have to pay the entire £3,000 top-up fee.
The Scottish Executive's budget will finance the move and comes on the heels of a warning from student leaders in England that new graduates will be faced with debts of £30,000 because of the new fees that began in September of last year. The Student Loans Company reported a sharp rise in student loans -- £3.4 billion through last April compared to £2.8 billion in the previous year.

Scottish students currently pay a much smaller contribution to the cost of their education than students in England. Scottish students pay an "endowment" of £2,289 in the April after they graduate. The purpose of the endowment is to provide grants for the poorest students. This support will continue, and financing for the £15 million cost will be paid by taxpayers.

As part of the abolishment of a fee structure, Scottish Parliament was told that current and future students will no longer have to pay the endowment fee. New legislation is in the process of drafting for the fall with hopes of implementing the change by April. During the three years that the program has run, only about a third of students paid the fee directly; the rest added it to their student loan. The money from the endowment fees was used to provide support for the poorest students, but the Ms. Hyslop sees that it is an inefficient way to generate money for student support. She says education should be contingent upon the ability to learn rather than the ability to pay. She also says that it is wrong for graduates to begin their new careers with financial pressures hanging over their heads, thus preventing them from contributing to a wealthier and fairer Scotland.

Another thing that is changing according to Ms. Hyslop is that student loans for living costs are being eliminated in favour of a grants system that will pay off all accumulated debt of Scottish students, which is estimated to be between £1 billion and £2 billion. Both policies are long-term Scottish National Party election pledges and will be reviewed at the next spending review in the autumn when the Scottish Executive's £30 billion annual budget is determined.

The National Union of Students says that Westminster must adapt the same policy as Scotland regarding free higher education. British students are feeling twinges of jealousy over the Scottish Executive's proposals to eliminate the graduate endowment scheme according to NUS president, Gemma Tumelty. She states they have campaigned for a long time for publicly funded higher education, and they support the SNP's commitment toward that goal.

The NUS feels that decision-makers at Westminster have underestimated the impact of student debt and their long-term capacity to save and buy a home. They are pleased that concerns over student debt levels have contributed to the SNP's recent decision to do away from the graduate endowment.

Student debt in England increased by 4.8 per cent in 2005-2006, the year prior to top-up fees being introduced. The highest debt level was at Imperial College in London where students graduated with an average debt of £16,100, followed by University College, London at £13,400, and London School of Economics, £13,100.

Personal debt for UK citizens is on the rise, with current figures showing an alarming growth pattern for 2006 and 2007. Reports from Credit Action indicate that consumer debt as a whole increased 10.4 per cent through April 2007, and at the present time stands at £1.325 trillion. Of that figure, £1.1 trillion is secured lending such as mortgages, making the total increase 11.4 per cent compared to the previous year's figures.

In addition, a 5.4 per cent in credit lending was reported, and stands at £213 billion based on reports by Money High Street.

Currently, the average debt per household is over £8,800 not including mortgages. The figure rises to £54,771 when mortgages are included in the figure. This means nine per cent of all take home pay goes into debt repayments, an amount that poses serious financial pressure in many households.

Figures from the Insolvency Service indicate that 46 per cent more borrowers entered into individual voluntary arrangements during the first three months of 2007 than during the same period a year ago. According to QCK, 15,356 people filed bankruptcy during the first quarter and 11,299 entered into IVAs.

Recent figures show that the number of County Court Judgments (CCJs) has reached a level that is the higher than it has been in almost ten years. During the first three months of 2007, almost 250,000 CCJs were issued in England and Wales, an increase of 9.5 per cent over the same period a year ago. The total of 247,187 CCJs that were issued during the first quarter of this year is the highest since the summer of 1997. If you include business judgments, the total then becomes 296,841, an increase of 9.1 per cent.

According to the Registry Trust, lenders are relying more heavily on the court system in order to deal with unsecured debts. According to experts, an increase in the number of households who are struggling financially is also reflected in the data.

Approximately 70 per cent of consumer CCJs were the result of debts according to estimates that were compiled by the Registry Trust. Other organisations such as the HM Revenue & Customs, water firms, and the Driver and Vehicle Licensing Agency comprise the other thirty per cent of CCJs.

Debtors who fail to comply with the repayment schedule determined by the judgement are placed on a CCJ register for six years, thus making it harder to borrow money or buy a home.

The trend seems to be headed in the direction of more consumer judgements, and with this quarter's record, numbers, consumers who have unsecured debts are receiving the warning that their failure to pay will put their credit rating at risk and legal action is only a step away.

In the 1990s when the economy improved, judgments declined as lenders turned away from the courts.

The most recent data also showed a 12 per cent increase in the number of CCJ register searches.

A meeting was held earlier in the week between insolvency practitioners and the banks in an effort geared toward the formulation of an agreement on certain key areas of individual voluntary arrangements (IVAs). IVAs have gained popularity as a way of managing debt problems that have escalated because of grown in UK personal debt. These agreements are legal contracts between the debtors and lenders that allow the borrowers to write off a portion of their debts while repaying the remainder over several years.

IVA companies make their profits by charging a fee to the banks for handling the repayment plan, and these fees can range from £4,000 to £8,000. Some banks feel these fees are exorbitant and are asking the insolvency practitioners to review them.

Both banks and IVA companies are anxious to provide the details that will resolve the issues once and for all.

Eric Leenders of the British Bankers Association spoke on BBC Radio Five Live and stated that he wanted to see the implementation of some proposals that will be equitable for both sides. Part of that would mean to process efficiencies, which would help consumers since the paperwork would be simpler and much more accessible.

Nick O'Reilly, vice president of the Association of Business Recovery Professionals had previously stated that he welcomed the opportunity offered by the meeting and felt a lot of progress had been made in the months preceding the meeting. His feeling was that the banks don't realize all of the work that goes into putting together an insolvency package for a debtor.

O'Reilly felt that developing a system where the insolvency practitioner receives a portion of the fee upfront and the remainder later was a system that would prove the most helpful to all involved.

Credit Awareness Week, an event that ran in the UK from May 14-20 highlighted the fact that half of Britons admit they make serious errors in financial judgement and have debt problems due to poor control of their finances. According to Credit Expert, more than 80% of people overspend on a regular basis, while millions of others are in so much debt that they seriously consider some form of debt relief such as bankruptcy.
Some of the financial errors that people make that are main contributors to overspending are taking out consolidation loans with long repayment terms and "therapy spending." In addition, research revealed that 5 per cent of people have either taken out an individual voluntary agreement(IVA) or filed bankruptcy because of too much debt. Almost 10 per cent admitted to taking out a credit card in order to pay off another credit card while another 10 per cent say they have missed payments on credit cards, loans, or mortgages because of their debt problems.
Credit Today Magazine along with an expert group of partner organisations that included Experian, the British Bankers Association, and the Consumer Credit Counselling Service organised Credit Awareness Week with the intention of helping the people in the UK learn how to gain better control over the financial decisions they make and thus, eliminate their debt problems.

Jim Hodgkins, managing director of Credit Expert states that the number of people who are making basic financial errors in judgement and even looking for quick fix solutions to debt problems such as filing IVAs is worrisome. What their research proved is that people in the UK have a serious lack of understanding about the long-term effects of financial judgement errors and how problems with debt can affect their credit rating and thus impact their financial future.

In spite of recent announcements of record insolvency figures, Britain is become a comfortable nation, a report states.

Research conducted by Credit Expert says that six million people in Britain would be unconcerned about their unsecured debt unless it reached £15,000 while another 1.4 million would only worry when it reached £50,000. Even with recent threats of interest-rate increases before the end of the month, the quarterly "credit pulse" survey indicates that people feel comfortable with the amount of debt they have accumulated on their credit cards and in unsecured bank loans. The report also shows that 54 per cent of adults are comfortable with the amount of debt they are carrying while 41 per cent are very comfortable with it, both substantial increases over the 29 per cent that was reported in January.

According to Jim Hodgkins from CreditExpert, the credit comfy generation that currently exists in Britain is numb when it comes to the real effects of increasing debt. Many people in Britain find it difficult to recognize the signs of an unmanageable debt load. With the rise in interest rates, many will suddenly find that their debt is in danger of reaching uncontrollable levels.

The survey was conducted on 2,000 people and also revealed that 30 per cent of people would be unhappy with only £1,000 of debt. According to money charity Credit Action, the average adult in Britain has £4,500 in unsecured loans.

A spokesperson for the National Debtline says it is difficult to say what level of borrowing should cause concern for an individual. Unmanageable debt is difficult to define as it is relative to a person's ability to pay. In addition, even with the levels of consumer borrowing on the rise, many people simply view their debt level as an unavoidable part of life and do not find it as an issue about which they should become concerned.

Recent research recently released by Scottish Widows reveals that the cost of running a household in Britain requires more than one breadwinner to maintain an acceptable living standard in 44 per cent of homes. In addition, 50 per cent of families with children find it increasingly difficult to make ends meet without both partners working. The average household with two children is £100,600 in debt, including the mortgage, £19,100 more than a household without children.

Richard Jones from Scottish Widows stated that the increased need for two-income households might be the result of a rise in consumer credit. Relatively low interest rates combined with high job security have made borrowing an attractive option for many households in recent years.

The report also revealed that 27 per cent of adults have no money in savings with another 25 per cent have less than £3,000.

New laws in England and Wales may put debtors into the hands of unscrupulous bailiffs according to a warning issued by the Citizens Advice consumer charity. Under the new law, bailiffs could be granted legal permission to break into the homes of debtors in those areas. Citizens Advice feels the law will increase the number of cases of system abuse, but the government states that it plans to help protect vulnerable people by simplifying the laws that govern bailiffs.
The proposed changes are part of the Tribunals, Courts and Enforcement bill, which is in the midst of its second reading in the House of Commons. Presently only enforcement officers who deal with magistrates' court fines have the legal right to forcibly enter people's homes. The concern of Citizens Advice is that this bill will give bailiffs the right to do so in cases where a debtor owes on a credit card. The charity wants the provisions of the bill to indicate that it should be a last resort and one that will not be used on a vulnerable person. It also wants the bill to reflect that the power should only be used on those persons whose non-payment is the result of wilful neglect and not those who are financially unable to pay.

Because intimidation, harassment, and the charging of exorbitant fees are already abundant problems, Citizens Advice is also pushing for the legislation to include provisions for independent regulation of bailiffs. The charity analyzed 500 cases, which showed that two thirds of bailiffs were guilty of harassing and intimidating debtors, while forty per cent misrepresented their powers regarding entry into the debtor's home. In addition, nearly half of the bailiffs levied fees that were unfair and a quarter threatened to put the debtor into jail if he or she didn't pay.

Research shows that a minority of bailiffs have a long history of abusing their powers against vulnerable people, are often abusive and aggressive, and make threats of violence or prison terms in order to pressure people into paying large sums of money that they cannot afford.

"Instead it gives bailiffs greater powers without any proper regulation - a recipe for abuse on an unprecedented scale."

But the government says the bill will simplify the laws governing bailiffs, and will help protect vulnerable people by creating a framework for regulation.
It says it will be able to introduce a certification scheme for enforcement agents, which will cover issues like proper training, criminal records checks and references.