Debt & Bankruptcy Issues in the UK

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.