Debt & Bankruptcy Issues in the UK

Tactics used by bailiffs only drive the vulnerable further into debt, according to financial charity the Citizens Advice Bureau.

Private bailiffs used to collect unpaid council tax are having a negative effect on those trying to get out of debt, according to the Citizens Advice Bureau (CAB).

Many private bailiffs intimidate and harass people and charge excessive fees which can drive many further into financial difficulties.

CAB is launching a campaign to curb the practices of such bailiffs and ensure fairer and more compassionate tactics are used.

David Harker, chief executive of CAB, said: "It is a scandal and a disgrace that six years after the publication of the government's own review there has been so little action taken, and the misery and abuse continues.

"Reports from clients of intimidation, unreasonable demands and excessive charges by bailiffs are commonplace."

Those who are already vulnerable are being driven further into poverty and debt by the practices of these bailiffs, Mr Harker added.

CAB is calling on the government to include the regulation of bailiff practices in its new draft bill.

The financial charity has documented cases in which bailiffs have taken items worth far more than the debtor owes, as well as taking items not owned by the debtor.

Young people are increasingly turning to insolvency as an easy option, a credit checking service has warned.

According to Callcredit, rising numbers of students are declaring insolvency in the belief that they can wipe the financial slate clean.

Insolvency figures appear to bear this out: 899 students declared themselves bankrupt in 2005, compared to just eight in 1992.

"Bankruptcy is not an easy option and changes in the law in 2004 mean that any student who went down this route would still be liable for their student loan," warned Mel Mitchley, industry relations director at Callcredit.

"And quite apart from this, bankruptcy has serious consequences in terms of current and future assets. Any hopes of future home ownership may be ruined and even something as simple as opening a bank account may become difficult," she added.

The UK's debt culture has been described as "unstable" this week by the chief executive of IFA Promotion, David Elms, who pointed out that for every pound saved in the second quarter of 2006, 48 pence was borrowed.

These figures appear to suggest that the numbers of people currently at risk of insolvency are as high as ever.

A worrying new report suggests that the value of pension investment returns is plummeting.

According to Moneyfacts, an individual with a personal pension who retires today may be as much as 50 per cent worse off than someone who made the same contributions but reached retirement ten years ago.

The report will not be welcome news to pensioners hoping to clear their debt with a lump sum payout and then spend their retirement debt free.

"The fact remains that today's pensioners are facing a longer retirement with pension pots half the size of those fortunate enough to have retired a decade ago," said Richard Eagling, editor of investment, life and pensions at Moneyfacts.

"These latest figures should serve as a powerful reminder that securing a comfortable retirement will only be possible for those individuals who actively monitor and manage their own pension provision," he warned.

Recent figures from Sesame suggested that one in four pensioners are no longer expecting to clear their debt before they die.

Since the Office of Fair Trading forced creditors to lower their default fees, many have increased interest rates.

Though the Office of Fair Trading recently made credit card suppliers lower their late charges, they have retaliated by upping interest rates significantly, according to financial expert moneyfacts.co.uk.

More bad debts and loss of revenue after they were forced to drop default charges to £12, has resulted in many credit providers raising their interest rates by as much as 12 per cent.

For those who already have a large amount of debt on their credit cards, the rise in interest rates could have long-term repercussions.

Lisa Taylor, analyst at moneyfacts.co.uk, said: "Not only are providers increasing rates, but over the last five years we have seen a dramatic reduction to the minimum repayments required.

"In 2001, around 70 per cent of card provider's stipulated minimum repayments of at least 3 per cent; today only 30 per cent of lenders require a monthly repayment of this amount or greater."

Allowing debtors to owe money over a more extended period is not a responsible approach to lending, especially when debt is rising as fast as it is, added Ms Taylor.

Making payments at even a slight bit more than the minimum of what is required, could have a substantial impact on one's debt, according to moneyfacts.co.uk.

At the end of July 2006, the overall amount of personal debt in the UK stood at £1,237 billion.

Once again, the numbers of people in the UK claiming insolvency has risen.

An insolvency advisor has predicted record profits this year, fuelling concerns that insolvency levels are soaring to uncontrollable levels.

According to Debt Free Direct, which advises customers on insolvency agreements and debt restructuring, its profits will beat expectations by a staggering ten per cent.

The company is paid by the banks and building societies for assisting them to recoup at least some of the debt when a debtor reports insolvency.

The number of individual voluntary arrangements (IVA) arranged by Debt Free Direct increased by 196 per cent during May to July, as compared to the same period a year earlier.

A request has been submitted to the government by the Insolvency Practitioners Association for an investigation into the marketing of IVAs, amid concerns that borrowers are being misled into believing they can escape more debt than is realistic.

Debt Free Direct currently controls 20 per cent of the IVA market.

With pressure from the government, all lenders have now agreed and are required to give clear details about the handling charges and interest rates involved when using card checks. They have stated that they will make this information clear and will announce it to a potential customer, not hide it in fine print in a long list of their terms of service.

However. It now seems that the government has eased on the enforcement of these regulations and lenders are finding loopholes in the system.

Many consumer groups argue that the government regulations have made no progress as many customers are still unaware of the extra charges that are associated with card checks, especially those that are unsolicited.

The Department of Trade and Industry has announced that according to multiple research studies, there is nothing that connects card checks to increased debt, but regardless, many groups want to force banks to give more information about the financial costs of using these checks. They want new laws and regulations to require all lenders to give explicit details on the interest level charged, the level of legal protection offered, and other pertinent information to all those who are interested in card checks.

"The extra information will go a long way in helping consumers and will make it easier for them to find the type of finance they want," said consumer minister Ian McCartney.

However, Mr. McCartney went on to say that the government would only look into the case when the industry has “failed to take the necessary steps” or there was clear evidence that the use of checks was linked to financial insecurity.

"It is clear that self-regulation amongst banks is not working to protect consumer's best interests and there is a danger that the people being targeted by this practice could be plunged into serious debt," said Nick White, head of personal finance at price comparison firm Uswitch.

A financial comparison site has warned its own industry against encouraging those at risk of insolvency into further debt.

Financial comparison sites can encourage people to take out more loans and credit cards than they can afford, increasing the risk of insolvency, new research has said.

A study from Money Expert has found that as many as 8.7 million people have bought financial products via comparison websites in the past year, many of whom may be at risk of being unable to manage their debts – eventually risking insolvency.

The concern, according to the academic that carried out the research, arises from the way in which the sites rank compare products, focusing too much on price and not enough on additional product features such as service quality.

In addition, applying for credit can damage a person's credit rating even further, which can make applying for credit such as a mortgage even more difficult in the future.

Professor Merlin Stone from the Bristol Business School was commissioned to produce the research by Money Expert.

Mike Naylor, a spokesperson for the consumer magazine Which?, spoke of the importance of knowledge in preventing problems such as insolvency: "I think there is probably a need for everybody to get educated, even people with good credit ratings."

He continued that once problems start, there is little that can be done: "I would have to say that proper, responsible management of your finances is the only way to improve your credit score. However, it is a myth that you can rebuild your credit rating."

Nearly one in five adults has bought a financial services product through a price comparison site in the last 12 months, Money Expert said.

This year, a new system of paying off student loans will go into affect. Many are concerned that this new system will drive more and more students into deeper debt than they already are.

Unalike previous years, in 2006, students will be required to pay £3,000 a year in tuition that will be billed on completion of their courses. This new rule will be for all new students attending school in England and Northern Ireland. In previous years, students only had to pay £1,200 at the start of the school year.

For those who plan to attend school for the typical three or four years, their total cost of education would be £9,000 or £12,000.

Hence, many students will not be able to pay off the cost of education immediately and will need to take out a sizeable loan that could take many years to completely pay off. Reports have shown that most students will take out a loan from the Student Loan Company (SLC), which they will pay off once they have graduated and have a job.

However, the £12,000 fee is only for tuition. Many students will require loans to pay for room and board and other living expenses, which could amount to debts in excess of £20,000.

Many institutions, including the National Union of Students (NUS) and others, are very concerned on the affect that this new policy will have on the financial stability of the young adults in the geographical areas where this rule has been put into effect.

"Students today are leaving university with massive levels of debt and paying back student loans puts a major strain on their finances," said Wes Streeting, a vice-president of the NUS. Applications for courses starting in September 2006 have dropped by 3.4% on the same period last year."

However, despite the rising costs for education in the area, there are plenty of options for low cost courses as demand for them grows. Under this new policy, universities are not legally required to charge the full £3,000 annual tuition fee. So those who see that there is a growing market for cheaper college education are developing courses and programs at a lower cost for students who don’t have enough money to pay for the cost of a college education or don’t want to take out a large loan.

However, many colleges have already decreased their costs of education and are using it as their advertising pitch to help generate buzz and interest in their school.

For example, Leeds Metropolitan University, charges just £2,000 for a years worth of tuition and as a result enrollment has increased drastically, while enrollment of the other colleges in the community who charge more annually have decreased.

The University of Gloucestershire is also offering a 20% discount if any student is able to pay £9,000 of tuition fees up front.

These schools recognize that not everyone will be able to afford to go to college or want to go to college with these high rates and many people are looking for a less expensive second opinion. By educing prices, these colleges are giving students the opportunity to get an education at a more affordable price, while at the same time increasing their enrollment.

Those who are against this new plan believe that it forces students into debt and that those who do not come from wealthy families, cannot pay off a major portion of it before they graduate as those who paid back college tuition fees in past years were sometimes able to. Students have no other option than to graduate with a debt that they will have to work for years to pay off. This is especially true for those who come from a poorer family and won’t be able to cover much of their education costs before they graduate.

Other groups, such as Citizens Advice (CA), also agree that this new policy will cause far too many students to be forced deep into debt before they are 25 years old.

"Students are particularly vulnerable because they have no choice but to get into debt" says Sue Edwards of the CA. "People don't get education in financial matters and credit is very easy to get."

SLC loans only have to be paid off once those in debt are earning at least £15,000 annually. However, many students want to get to work and pay off the loan as quickly as possible to save in high interest costs.

This new policy has required more and more students to spend longer hours working to help pay of their tuition and living expenses. A recent research study, conducted by the Natwest bank, said that almost 87% of this year's new students think they will have to find a job and they will need it of they hope to graduate with minimal debt.

One good thing about the SLC is that delayed repayments will generally not show up on your credit report, while delays in paying bank loans and credit card debt will. That is why those who need to take out a loan for college often opt for the SLC over a bank.

James Jones, the consumer affairs manager of Experian, is also concerned that the growing number of students who also use credit cards will have even more debt to pay of and recommends that students stay away from credit cars.

"Protect your credit report while you can," Mr Jones warns. "Get your finances back on track before you ruin your credit status and put your ability to obtain essential credit, like a mortgage or a car loan, in jeopardy."

A high street bank has raised concerns over its customers using overdrafts as long-term loans. HSBC will now require its account holders to re-negotiate their overdraft on a yearly basis, giving the bank the opportunity to increase charges at the same time.

There are 4.5 million UK customers affected at just this one high street bank and if others follow suit, there may be millions more across the country faced with an unexpected financial review. The decision comes in advance of a report from the Office of Fair Trading, which will make conclusions on an investigation into penalty charges on overdrafts and mortgages.

HSBC has said that by introducing a yearly review, it will be able to spot those in financial difficulty much earlier. Its customers already hold lower than average overdraft limits, at an average of £900 compared to the industry average of between £1,200 and £1,750. Stuart Glendinning, managing director at moneysupermarket.com, has said that he believes the move by HSBC is to protect itself from "exposure to bad debt".

"Personally I don't think a bank should be criticised for reducing its exposure to bad debt and neither do I think it inappropriate to point out that customers shouldn't view the overdraft as a salary extension," he said. "Although some customers might find it uncomfortable having access to an overdraft denied it, arguably, is still in the consumers' best long term interests." Many people find that a debt consolidation loan is a good way of managing their finances when debts are called in by lenders.

Since penalty charges on credit cards were capped in April, the industry has lost £300 million a year, according to a price comparison website. uSwitch reports that prior to the decision by the Office of Fair Trading (OFT) to limit charges to £12, credit card companies were making £679 million a year from customers making late payments and going over their credit limit, a figure now down to £379 million.

According to uSwitch, however, companies are attempting to recoup the money in other ways, such as increasing balance transfer fees and changing the order of repayments so cardholders pay off the amount with the lowest interest rate first. "While the OFT's decision to force credit card providers to reduce default charges was undoubtedly a victory for the nation's 30.6 million credit card customers, the card issuers' responses elsewhere have not been so welcome," said Nick White, head of personal finance at uSwitch.

He continued: "Unfortunately, these developments come as no surprise and will no doubt continue to happen across the credit card industry. They are unlikely to write off the additional £300 million a year generated by the old levels of default charges." Many people find that paying off their credit cards with a debt consolidation loan is a better way to manage their finances.

New figures indicate that Brits spent over £9 billion on their credit cards while abroad this summer, meaning many are facing huge debts as they try to recover from their holiday extravagances.

The research from moneysupermarket.com also indicates that interest on holiday accrued debt could reach £550 million by the end of the year as people struggle to pay for their purchases.

The figures highlight the need for many Britons to take drastic action to get their finances in order, as Rob Kenley, head of credit cards at moneysupermarket.com, explains.

"You could be left with more than a tan if you don’t think about how to handle your debt when you come home," he said, adding that this is especially the case for the 41 per cent of credit card holders who fail to clear their balance at the end of each month.

For those struggling to pay off credit card bills, a debt consolidation or homeowner loan could be the answer to help get finances back on an even keel.

A new survey has found that a quarter of those over 56-years-old are struggling to pay their debts on their utility bills. Following recent sudden increases in energy prices, many pensioners (2.5 million) are having difficulty making ends meet, Money Expert has found.

These figures are all the more startling when compared to the other group that might be expected to struggle with paying their debt: the 25 to 34-year-olds. However, only 14 per cent of this age group claimed to be in difficulty.

The findings support recent findings by Prudential that pensioner inflation (the rate at which daily expenses are increasing for those on a pension) is much higher than retail inflation (3.5 per cent compared to 2.5 per cent).

According to Money Expert, the average fuel bill has increased by about 40 per cent over the last 12 months. "There have been around a dozen fuel price increases since the beginning of this year and these have hit many homes hard," said Sean Gardner, chief executive at Money Expert.

"Those hardest hit with debt problems are pensioners where already one in five is below the poverty line. Rising fuel bills, which are primarily a result of increased wholesale prices, are having a terrible effect on many homes." The online price comparison site suggests that people shop around for the best supplier in order to try and keep their bills down. Many may also be considering taking out a homeowner loan in order to free-up their income to meet bill payments.

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Despite predictions, credit card borrowing is still on the increase. Figures released today by the Bank of England show that consumer credit increased by £1.1 billion in July, taking the total level of outstanding UK consumer debt to £211.9 billion.

Although this figure is not increasing as quickly as it was at this time last year, many experts will be surprised that there is any growth at all, as several had predicted a slow-down in credit card lending and unsecured debt in general.

Earlier this month, the Major British Banking Groups (MBBG) released figures which suggested that new borrowing on credit cards in July was at the lowest level since 2002, shrinking by £348 million in comparison to the month before. David Dooks, the director of statistics at the British Bankers' Association, called this "the on-going contraction in credit card borrowing".

Following reports by credit monitoring service CreditExpert that more than a third of Britons have a poor credit score, borrowing on cards was expected by many experts to decrease, but this does not appear to be the case, with many individuals taking their personal finances into their own hands. As a consequence, increasingly people are finding that a debt consolidation loan can be the best way out of unmanageable debt.


Read related articles: "Over 50s suffer worse credit card debt"

A new survey has found that the British are better at saving than they are being given credit for. Despite earlier reports that many householders are struggling with debt problems, Birmingham Midshires has said that the average Brit is actually sitting on £7,548 of savings.

According to the building society, this would be enough to hunker down for 167 rainy days and stay pay any mortgage, credit cards and other unsecured debt. Many advisers suggest having three months' salary tucked away for times of need, which would add up to £4,128 over a three months period. Most UK adults appear to be doing a good job of looking after their finances in this respect.

"For a long time we've been vocal in recommending that Britons have at least three months' salary in savings to cover those unexpected costs that lurk around the corner," said Jason Robinson, director of savings operations at Birmingham Midshires. "It is encouraging to see that we are taking heed of this message and are actually saving double this amount."

The company's survey found that the actual amount saved varied by age, gender and postcode with the ideal saver being a man over 50 who lives in the South of England (but not in London). However, every group questioned had put aside something, suggesting that a responsible portfolio of affairs is a widespread occurrence. It seems that people in the UK are saving to avoid any debt issues should they undergo any sudden and unexpected change of circumstances.


Read related articles: "Britons "are comfortable" with their debts"

According to a new research conducted by online credit report service MyCallcredit, two Country Court Judgments (CCJs) are registered for every 100 adults over the age of 18 in England and Wales over the past 12 months. This percentage is up to three times hire than the overall percentage in certain towns. For example, Purfleet, Essex saw that CCJs were filed against 6 per 100 adults in the region or 6%.

Its research organized the number of CCJs registered in England and Wales, by geographic divisons as well as the financial characteristics of residents in different parts of the country to help determine which areas are at the most risk of defaulting on their credit commitments.

There were over 750,000 CCJs registered in England and Wales from May 2005 to May 2006 alone.

Callcredit Director Mel Mitchley says: “Where you live can reveal so much about your life from whether you’re likely to have a CCJ to how likely you are to own a car or have access to the internet. Our research found that 55 per cent of the population live in postcode areas where no CCJs were recorded in the last twelve months. We also found that those postcodes with the highest numbers of CCJs per head of population tended to share certain demographic characteristics. But a combination of record levels of personal debt combined with the recent interest rate rise could mean that over the next year we start to see CCJs in neighbourhoods that have so far been unaffected.”

The research found that nearly 750,000 CCJs were filed over the past 12 months and 55% of the population of England and Wales live in a sector where no CCJs were recorded over the last twelve months, while 30% of the population live in sector where between one and two CCJs were recorded over the last twelve months, and 15% of the population lives in a sector where three or more CCJs were registered in that postcode over the last twelve months.

As far as geodemographics are concerned, the highest CCJ percentage areas for found in both urban and suburban communities with a smaller than average semis or terraced properties, lower than average value property, and a higher than average council owned or ex-council .

Of the 20 worst towns in terms of CCJs per head, three towns are in London, three are in Yorkshire, one in both the North East and North West, four in the East, and eight in the Midlands.

Ms Mitchley says: “There are many factors which will affect whether someone gets into difficulty with debt but the geodemographic profile of where you live is clearly one of the indicators that lenders can use to support their responsible lending policies.

The high number of CCJs per head is yet another concern or economists who are wondering how it will effect the British economy that is currently already plagued with high debt and insolvency.


Read related articles: "Postcode indicators for CCJs"