At times during the past months it has been impossible to escape insolvencies. Every day seems to bring news of another company hitting the rocks. Kookai, Golden Wonder, Unwins, Sock Shop… all are in administration.

The rise in insolvencies, administrations and bankruptcies is good news for solicitors, but better news for the barristers at 3/4 South Square, which has built up a reputation as the best insolvency set in town.

Despite murmurings that insolvency litigation is not what it once was, senior practice manager Paul Cooklin describes his chambers as being on "orange alert". He is not yet turning work away, but from the most junior junior to chambers head Michael Crystal QC, things are apparently pretty busy.

Crystal is, and has been for a long time, the set's big name. His biggest case remains the £1.2bn Thyssen litigation, which took him to Bermuda for a long period of time between 1999 and 2002. The case threw him into the media spotlight - he was even featured in Vanity Fair - and rumours of a £1m fee abounded.

Crystal is not known as being the easiest barrister to work with. One solicitor described him as a "handful". However, his reputation as a top silk is solid and well deserved. He is also a deputy High Court judge, a position shared by fellow 3/4 South Square member Gabriel Moss QC. Moss is in huge demand for insolvency and banking work, appearing in an impressive six recorded cases in 2005. The set's juniors are also popular, particularly Antony Zacaroli, who is praised for his outstanding technical expertise.

Moss and Crystal are joined by another 13 silks and 31 juniors on 3/4 South Square's roster of full tenants. Members enjoy an average revenue per barrister of £444,000 and chambers contributions of just 11.5 per cent, making them one of the the highest-earning team of counsels in England and Wales.

Cooklin says the set is happy with its size. It is not so small that critical mass is an issue, nor so large that it runs the risk of becoming a small law firm. He and his team of clerks are thus able to keep a tight handle on the set's management and on work coming in, garnering them as good a reputation as their tenants'.

However, according to City litigation partners, and indeed Cooklin, 3/4 South Square's reputation is also its Achilles' heel.

"Occasionally some of them can be a little bit complacent because they're the pre-eminent set," says one City partner, adding that some serious competition might do 3/4 South Square some good.

Cooklin's attitude would seem to back up this view. "It's going to be hard over the next few years to find another set that matches the quality and depth we have here," he claims.

The problem is that the current competition does not come from any one place. Serle Court and Erskine Chambers both have small groups of noted practitioners, such as Michael Briggs QC and Richard Snowden QC. 4 Stone Buildings has John Brisby QC. But no other set has quite the number of insolvency specialists as 3/4 South Square, putting it in the peculiar position of being the only chambers really focusing on this area. In other niche practices, such as tax or IP law, there are a number of sets competing for work.

The other question mark over the set at present is how the changing nature of insolvency law will affect its work. Freshfields Bruckhaus Deringer partner Richard Tett points out that, while administrations - particularly in the retail sector - are rising, there are fewer formal insolvencies around, and therefore less actual court work.

"There's a lot of restructuring work around and there's a fair amount of insolvency work, but not as much," Tett states.

Cooklin agrees, but says the changes are affecting the way barristers are instructed rather than how often they are instructed. He estimates that two-thirds of 3/4 South Square's insolvency work is now advisory and that counsel becomes part of the equation a few weeks after a company is put into administration.

To counter the changes, the set is now increasingly to be found on non-insolvency cases. No fewer than four tenants were instructed on the BCCI litigation that collapsed in November 2005: Mark Phillips QC, Ben Valentin and Tom Smith for successful defendant the Bank of England, and Barry Isaacs for liquidators Deloitte. In October, Richard Adkins QC, Zacaroli and Jeremy Goldring will appear in the multimillion-dollar litigation between NatWest and Rabobank.

The non-insolvency work is becoming more prominent. As well as BCCI, members appeared in the complicated and important insolvency case of HIH Casualty & General Insurance; the House of Lords hearing of Re Spectrum Plus; and the new Gadget Shop litigation. And these were just the headline cases.

Tenants were jetting off abroad, too. A massive 40 per cent of work now takes place in overseas jurisdictions, including Hong Kong, the British Virgin Islands, the Cayman Islands and Continental Europe.

The diversification away from insolvency is, thinks Cooklin, the way forward. "For the specialist set, there's very much a future," he says. "However, it's got to branch out within the areas it's capable of branching out to."

It is unlikely that 3/4 South Square will be able to compete consistently with the bar's 'magic circle' of chambers for general commercial work. But cases such as BCCI prove that it can pick up instructions in hefty cases that are not pure insolvency while still keeping a firm grip on its core area.

With 12 children, Ray and Chris Beadle really have to scrimp and save to get by.
But the couple refuse to give up work and rely on the benefits system - even though they would be £2,632 a year better off if they stopped work.

They could not be more different from single mother Ellen Morris who, as the Daily Mail told last week, receives state handouts totalling nearly £28,000 annually for her 13 children.

While she is demanding a new house from the local council and is planning to add to her brood, the Beadles have always insisted on working for what they get, however hard that may be.

"Yes, of course we could jack in all the hard work and stress of trying to make ends meet," said Mrs Beadle, 49.

"But I want to walk out of my front door with my head held high knowing this family pays its own way."

The couple, from South Otterington, North Yorkshire, have had to take four jobs between them - Mr Beadle, 42, washed windows for £4 a time, did gardening work and delivered free newspapers, while his wife sold bedding plants and shrubs for 25p each from their neatly-kept front garden.

Since Mr Beadle suffered a heart attack last year their son Stephen, 19, has taken on his business, helped by his brother Christopher, 15, but refuses to claim incapacity benefit.

Instead he intends to decorate flower pots and garden ornaments to help his wife.

The household's annual earnings of £12,000 are supplemented by child benefit of £3,224 and £6,000 in tax credits - Labour's flagship measure meant to supplement low incomes.

That totals just £21,224 to provide for themselves and the seven children still living at home - a long way short of the £23,856 they would receive if both gave up work and claimed the handouts to which they would be entitled.

On top of personal benefits they would receive relief on their £103-a-month council tax bills and free school meals for the five youngest children. But they are in no doubt that they are doing the right thing.

'No way to bring up children'

"It makes me sick when I hear about people who have never done a day's work in their lives getting tens of thousands of pounds in benefits, but it's no way to bring children up," said Mrs Beadle.

"The problem is that the system is stacked in favour of people who don't want to work.

"But our older ones all work too and are looking to follow in our footsteps and own their homes, and that shows that we have set them the right example."

The lifestyle led by the couple and the other children living at home - Annette, 17, Catherine, 12, Hannah, 11, Timothy, eight, and Hayley, five - is a far cry from the likes of Miss Morris with her widescreen television and DVD player.

"Our television is an old one given to us by a friend after ours blew up and our car is an old banger we bought for £100," added Mrs Beadle.

"We may not have the designer clothes and trainers either, but it is a happy, loving home and that's what counts."

The five eldest children have all left home - Vicky, 22, a nurse, Ray junior, 23, a groundsman, Trisha, 25, a chef, and, from Mrs Beadle's first marriage, Marc, 27, a factory worker, and Catrina, 31, a full-time mother-of-three.

The think-tank Civitas has highlighted how the benefits system encourages parents on low incomes to separate or give up work, and deputy director Robert Whelan said the Beadles set an outstanding example.

"They are obviously instilling in their children the message that you have to work for the things you want to the best of your talents, and that shows that positive human qualities will always triumph over a flawed system," he added.

Bankruptcies are running at record levels, with more than two thirds of cases relating to personal loans and credit card balances.

Help's at hand: the record number of bankrupt individuals have more options
There were 15,394 individual insolvencies in England and Wales in the second quarter of this year, according to figures from the Department of Trade and Industry.

This is nearly 37 per cent up on the same period last year. They included 11,195 bankruptcies and 4,199 individual voluntary arrangements (IVAs) - nearly 70 per cent more than before.

Mark Sands, director of the insolvency practice at KPMG, said: "This is a sign that the UK's demon debt is showing its ugly head. This indicates that the billions of pounds worth of consumer debt that is building up through loans and credit cards is, in numerous cases, getting out of control."

There have recently been a few high-profile bankruptcies too, proving that no one is necessarily immune. Yachtswoman Tracy Edwards, 43, who led the first all-female round-the-world crew, was made bankrupt just last month with debts of more than £8m.

HM Revenue & Customs is thought to bankrupt more people than any other single organisation. Yet around 70 per cent of bankruptcies are self-instigated, Mr Sands said.

If you were to find yourself in such serious financial difficulty that you would consider bankruptcy, you should examine all the options first. In addition to going for broke, you also have the option of an IVA. Mr Sands said: "Bankruptcy is very prescriptive legislation, and your affairs are dealt with with no regard to your views.

"An IVA is very flexible, and allows you to go to the auditors with ideas about how to solve your problems. Even the length of the voluntary agreement is decided between the two parties."

However, by taking the IVA route, you will not have your debts written off in the same way as a bankruptcy, said Mike Gerrard, a specialist in personal insolvency at Grant Thornton. You may find that half of the debt is written off, but you would be expected to pay off some of the remaining debt each month.

In general, interest on unsecured loans will not continue to roll up, but mortgage interest will accrue, Mr Gerrard said. But this can depend on the assets you have relative to the amount you owe.

He added: "An IVA is an increasingly popular way of dealing with this. It is a more debtor-friendly way of dealing with your difficulties."

In either case, you should not expect your financial position to be back to normal as soon as your bankruptcy is discharged, or your IVA completed. Credit reference agencies, which are the source of information for financial institutions considering whether or not to lend you money, will keep details on file for up to six years.

Mr Gerrard said: "You can't get credit above £500 without declaring that you are an undischarged bankrupt. Credit reference is really going to be the common problem that most people have."

It has been made easier to go bankrupt since the Enterprise Act 2004 enabled bankrupts to be discharged more quickly, often within a year, said Mr Sands: "You can even prepare your own petition for bankruptcy online. You can prepare the documents, and if you go to a court and they make the order, there is a bar code on the paperwork that will be read, and it will automatically go into their file."

This can be accessed via the Insolvency Service website at www.insolvency.gov.uk, which will also outline a range of extra information.

However, any students thinking that bankruptcy would be a simple, relatively painless way to resolve the debts they run up at university should think again.

Thanks to changes implemented about a year ago, debts with the Student Loan Company are no longer written off by bankruptcy. So for many graduates, bankruptcy would be futile, unless they had specifically targeted high street lenders for their loans, Mr Sands said.

Mr Sands and Mr Gerrard said that, although they had heard anecdotally that students had increasingly used bankruptcy to clear their debts, they had not seen an increase. Mr Gerrard said: "But there are lots of people in their 20s and 30s in financial difficulty."

Aside from the stigma attached to bankruptcy and insolvency, although it is less problematic than it was, there are a number of jobs that you are excluded from doing if you have been made bankrupt in the past.

You cannot become a director of a limited company, and you would find it hard, if not impossible, to get a job in financial services. However, Mr Gerrard added: "You can become an MP now."

Restrictions on people made bankrupt


You cannot become a director of a limited company.
You may not be able to practise as a solicitor.
You cannot work for HM Revenue & Customs.
You cannot borrow more than £500 without telling the lender that you are an undischarged bankrupt.
You may continue to have problems obtaining loans after bankruptcy is discharged because credit reference agencies can keep details of bad debts for up to six years. However, contrary to popular belief…
You can now become an MP if you have been declared bankrupt, but only if you do not have a bankruptcy restrictions order against you.
You can still work in the financial services industry but the Financial Services Authority may prohibit you from holding positions of seniority or responsibility.

The numbers of workers at leading debt collection agencies have been increased by over a third in a bid to cope with the worsening personal debt crisis.

Cabot Financial, which collects bad debts on behalf of HBOS, MBNA, Royal Bank of Scotland and Citigroup, has increased its workforce by 25 per cent over the past year, from 240 to nearly 300, and expects to recruit a further 100 this year.

BCW Group, another leading collection agency, now has 840 staff compared with 630 a year ago - a rise of more than 33 per cent. Intrum Justitia said the number of cases it has handled had risen by 20 per cent year on year.

TDX Group, a leading intermediary between high street banks, credit card companies and debt collection agencies, has warned that the personal debt crisis is going to get a lot worse.

Mark Oynett of TDX said the number of call centre staff dealing with people who had defaulted on their debts had increased by around 25 per cent.

"Those who think the debt problem is going to get better are kidding themselves. The number of delinquencies is rising, not falling," he said.

"Last year, banks added a lot of people to call centres to try to collect money, but that will not solve the problem - they need to come up with a solution for why people are defaulting."

Last week Lloyds TSB increased bad debt provision in its consumer division by 34 per cent to £905 million. It said it expected a further deterioration in the consumer credit environment in the first half of 2006.

Just days earlier, Barclays revealed that it had been forced to set aside £1.6 billion to cover bad debts for 2005 - up by 44 per cent on the previous year.

Personal debt in Britain stands at more than £1.1 trillion, as cheap borrowing conditions have enticed consumers to take out record levels of loans, credit cards and mortgages.

A landmark investigation into why women lag badly behind men in pay has called for a change of culture in schools and workplaces.

The Women and Work Commission concluded that the gender pay gap is worse in Britain than anywhere in Europe.

It found that women in full-time work were earning 17% less than men.

Among its 40 recommendations, the Commission said there should be more government support and improved vocational training.

One member of the Commission, John Cridland of the CBI, said the UK's culture was to blame for women being paid less.

"It is because of structural problems; because of young girls' choices in schools and the fact that our careers education system completely fails to make them realise that the choices they make will determine what they earn".

Job segregation

The Commission believes girls should be encouraged to think about non-traditional jobs as well as apprenticeships for women, especially in sectors with skill shortages.

In its Shaping a Fairer Future report, the government-established Commission said those with child care responsibilities are often forced to take part-time employment below their skill level where the problem is even worse.

The report said that many women are in low-paid work such as cleaning and caring and it calculated that ending job segregation would benefit the economy by as much as £23bn.

The Commission's chairwoman, Margaret Prosser, called the situation an outrage.

"Many women are working day-in, day-out far below their abilities," she said.

"If we do not make the fundamental change necessary to our school and workplace cultures, new jobs and opportunities will be filled in the same old way and women will continue to lose out."

'Missed the point'

But unions criticised the report for failing to recommend compulsory pay reviews to ensure women are not being paid less than their male counterparts.

Derek Simpson, general secretary of Amicus, said the report had "deliberately missed the point," adding that without compulsory pay audits, women will have to wait until "Doomsday" to earn the same as men.

Katherine Rake, from the Fawcett Society - an organisation which campaigns for equality for women - said that widespread discrimination was a major contributor to the pay gap.

"The Equal Opportunities Commission came out recently saying that 30,000 women a year are dismissed simply because they are pregnant," she told the BBC.

"There is widespread discrimination within the system and there's plenty of research to back that up" she added.

But Mr Cridland denied that employers were to blame.

"Absolutely not, we didn't find that at all," he said.

"15 Commissioners from all walks of society - the voluntary sector, the public sector, trade unions, employers - spent 18 months looking at the problem and they concluded that employer discrimination was neither the problem, and equal pay audits were not the solution."

The Commission was set up by Tony Blair in 2004 to examine womens' experiences in the workplace and barriers affecting career progression.

Before we race to punish UK residents over financial problems, let's look at the failure of bankruptcy revisions in the US recently.

In the UK we need to continue to explore better tools for resolving debt problems, like the SIVA. More on that latter.

In what will undoubtedly be the first of many "I told you so" reports, the National Association of Consumer Bankruptcy Attorneys has found that, overwhelmingly, people who file for bankruptcy protection aren't deadbeats who went on shopping sprees with the intention of shirking their debts.

That's quite contrary to what was being claimed by supporters of the new federal bankruptcy law that went into effect last October.

For years, those proponents argued that billions of dollars were being lost because people were simply being allowed to walk away from their debts.

"As retailers, we have seen firsthand the dramatic effect bankruptcy has had on both consumers' finances and on our ability to serve the public," wrote Steve Pfister, senior vice president for government relations at the National Retail Federation, in a letter to House members as the bankruptcy bill was being debated. "These filings ultimately cost the tens of millions of households we serve hundreds of dollars each in unseen costs every year. Unfortunately, many of those losses are the result of misuse of the law by irresponsible, higher-income filers."

On the day President Bush signed the bankruptcy bill, he said: "In recent years, too many people have abused the bankruptcy laws. They've walked away from debts even when they had the ability to repay them."

The new law requires people to get credit counseling before they can file for bankruptcy protection. The premise behind this provision is that by forcing people to get counseling, it will show that many bankruptcy filers in fact have enough money left over after taking care of their essential expenses to repay creditors.

I spent several years reporting on bankruptcy and I saw no evidence (academic or anecdotal) to support claims that many people were gaming the system.

Now, in the first analysis of the tens of thousands of people who have undergone credit counseling since the law passed, the bankruptcy attorneys association found that nearly all (97 percent) of the debtors truly couldn't pay their debts.

The association examined data provided by six large and small credit-counseling firms from a cross-section of the country. All of the firms have been authorized by the Justice Department's Executive Office for U.S. Trustees to provide the required pre-bankruptcy counseling. In total, the firms that were surveyed counseled 61,355 consumers.

Four out of five filers felt forced to seek bankruptcy protection because of a job loss, catastrophic medical expenses or the death of a spouse, according to the report, "Bankruptcy Reform's Impact: Where Are All the Deadbeats?"

One in 30 consumers (3.3 percent) was a candidate for paying off what he or she owed under a debt management plan (DMP), the report indicated. With a DMP, a debtor makes one monthly payment to a credit-counseling agency. The agency then distributes the funds according to a payment schedule it has worked out with the person's creditors.

Creditors may agree to lower interest rates or waive certain fees if they are being repaid through a DMP, although this is happening less and less as more people sign up for such plans. Typically it can take 36 to 60 months to repay debts through a DMP.

The highest estimate of consumers being able to make repayments under a credit-counseling DMP was 5 percent, with the low being in the 1 to 2 percent range, according to the report.

"The masses of expected deadbeats who were supposed to be identified under the new law and forced into debt management plans have not materialized," the association's report concludes.

Only about one in five (21 percent) of those seen by a credit-counseling firm was identified as racking up debt due to "circumstances within their control." In many of those cases, people said they didn't fully appreciate how credit card fees and finance charges could put them deeper and deeper into debt.

Okay, if you must, call the latter folks deadbeats. It's hardly a revelation that if you buy something on credit and you don't pay the bill off the next month, you're going to be charged interest. With the low minimum payments required, it's easy to amass a lot of debt over time. We all know this.

But I do sympathize with people who experience a major disruption to their income or become financially ruined by uncovered health care costs (a growing and disturbing trend in America). It is for these people we have bankruptcy protection.

There is at least something good to come out of the new law. If you're looking for a reputable credit-counseling agency -- even if you aren't filing for bankruptcy -- I'd suggest you choose one now certified by the Trustee program. At least then you'll have less chance of dealing with a deadbeat agency.

Online Video Series Educates Consumers on the Formal Alternative to Bankruptcy, the IVA

The Individual Voluntary Arrangement, or IVA, is becoming an increasingly popular tool for consumers facing severe debt problems. IVAs offer consumers the chance to repay a portion of their debts to creditors and be debt free in less than five years without declaring themselves bankrupt. With personal bankruptcy figures soaring, and the increased media coverage of the rise in bankruptcies, many people are unaware of the existence of the IVA as a practical alternative to 'going bust'. In response to this, the not-for-profit financial crisis centre Myvesta UK has created an extensive online video series that addresses and answers the most common questions associated with IVAs.

"IVAs are a complex and often misunderstood solution for consumers with severe debt problems," said Steve Rhode, chairman of Myvesta UK. "We stress that anyone facing financial difficulties should find out as much information as possible about all the available solutions so they can decide which solution best fits their needs. Our online video series will help to demystify the process of the IVA, and provide consumers with the information they need to make informed decisions."

Myvesta UK's "IVA to Z" video series offers more than sixty separate questions that are answered by a senior insolvency practitioner. Each question and answer is available individually, which allows people to choose which questions apply to their situation and get an immediate answer. Some of the questions available online include:

- How Much Debt Do I Need To Do An IVA?

- What Types Of Debt Can An IVA Deal With?

- Will Participating In An IVA Be Reflected On My Credit File?

- Will An IVA Stop Collection Calls?

- Will I Have To Sell My House If I Do An IVA?

"Getting the right answers to your questions when you're dealing with the stress of being in debt can seem like an impossible task," Mr Rhode said. "With our new video series we've made it simple to learn about IVAs and we've provided all the correct answers on one easy to access, free, web page."

To view Myvesta UK's IVA to Z video series or to learn about more options available when facing debt problems, visit www.Myvesta.org.uk online.

Myvesta UK is dedicated to helping people create healthy financial lives. The organisation provides a wide range of materials and services to inspire and inform people so that they can break down their barriers to financial and personal success. For more information visit Myvesta.org.uk online.

Distributed by PR Newswire on behalf of Myvesta UK

RUNCORN, England, February 24 /PRNewswire/

I'm up to my neck in debt. What does bankruptcy involve, and should I consider it?
If you find yourself in a position where it is impossible to repay your debts as they become due, you can file for bankruptcy.

Bankruptcy is a serious step to take, and there are other ways of dealing with debt. If you are considering bankruptcy you should take advice from an expert organisation.

The majority of your assets are handed over to a trustee, who controls them from that moment onwards. The trustee might be an official receiver (a civil servant and court official) or a licensed insolvency practitioner. In the initial stages of your bankruptcy you will deal with the official receiver

Their job is to find out as much as possible about what you own and what you owe, and then to make sure the people or companies to whom you owe money are repaid. You are then protected from your creditors, who can no longer pursue you for payment. You might have to make a monthly contribution to your debts, but that will be based on what you can afford.

You'll have to pay a deposit of £325 and a court fee of £150 (although in some circumstances the court will waive this fee, for example if you are on Income Support) become bankrupt, so it isn't a cheap option.

But after that you start with a clean slate?

Sort of. Your debts are effectively written off after bankruptcy, so for a lot of people it brings enormous relief. But it is not a decision to be taken lightly. Getting a mortgage, or any other credit in future , may be tough.

Does bankruptcy last forever?

No.

Most bankrupts will be automatically discharged after a maximum of 12 months, rather than two or three years as was formerly the case. But a new regime of Bankruptcy Restrictions Orders (BRO) will impose tougher restrictions to protect the public and the commercial community from those whose conduct has been irresponsible or reckless.

In cases where conduct is found to be reckless, culpable or irresponsible, a BRO will last for between two and 15 years. For all bankrupts there are restrictions on obtaining credit of more than £500 without disclosing their status, trading in a name other than the one in which the bankruptcy order was made and acting as a director, during the period of their bankruptcy. For those subject to a BRO these restrictions will apply for the duration of the order.

But after that period you're debt-free?

Yes, although discharge doesn't necessarily happen automatically. The courts can decide to postpone it if you do not co-operate with the official receiver or your trustee. Even after discharge, a record of your bankruptcy will be kept on your credit file by commercial credit reference agencies for the next six years, and during that time getting any sort of credit could be difficult.

Many of the irrelevant and outdated restrictions that currently apply to bankrupts and prevent them from holding certain offices are being removed. However, bankruptcy may affect a person's ability to work in certain professions and you cannot act as a company director without leave of the court.

I own more than I owe, so can I just hand over assets to the value of my debts and keep the rest?

Well, the new regulations do include a method of repaying debts from the bankrupt person's income which does not require a court order, but that will still last for three years.

And there is a fast-track voluntary arrangement system, which will mean a bankruptcy order can be annulled in return for greater or quicker payments to creditors.

But when it comes down to it, bankrupts still risk having most of their assets sold for the benefit of creditors. That means you may have to give up your car if you don't use it for work, any expensive jewellery ...

Oh dear. Still, whatever happens, they can't take my home, can they?

I'm afraid they can. If you own your home, the official receiver can sell it off to go towards paying your debts. If you have a mortgage and can't meet the payments, the lender might be allowed to sell your home.

If you have a partner or a spouse, they will be encouraged to buy your half of the equity in the property from the receiver. But if they can't do that the trustee will have three years to deal with your home.

If you rent your home, the receiver clearly cannot repossess, since the property is not yours. However, they can tell your landlord that you are bankrupt.

I've been paying into a pension for a few years now. They can't touch that, can they?

A trustee cannot usually claim a pension as an asset if your bankruptcy petition was presented on or after 29 May 2000, as long as the pension scheme has been approved by the Inland Revenue.

Not such an easy way out after all, is it?

Not especially, no. Bankruptcy is a very serious option and shouldn't be taken lightly

http://www.myvesta.org.uk

Barclays this week faced fresh accusations of profiteering after it emerged the bank is whacking up its fees for bounced cheques and unauthorised overdrafts.
News of the higher charges for millions of current account customers came on the day Barclays announced record profits of £5.3bn, with one of its big cheeses, investment banking head Bob Diamond, earning an estimated £15m last year.

It also comes just a few days after the bank launched a regular savings account paying 10%. So if ever there was a case of giving with one hand and taking with the other, this is it.

Some commentators said these latest developments should act as a "wake-up call" for disgruntled Barclays customers to seriously consider switching their account to a competitor offering a better deal.

So what is Barclays doing and how do its charges stack up against those of its rivals? It is increasing its "unpaid fee" by £5 to £35. A customer pays this fee when there is not enough money in their account to make a payment - for example, if they go overdrawn and a cheque they have written bounces.

It is also upping the fee that people must pay if the bank honours a payment that causes someone to exceed their agreed overdraft limit or go into the red without an agreed overdraft in place. This "paid referral fee" will rise from £25 to £30. Both of these changes take effect from March 31.

It is now a lot easier to stray into the fees minefield because last year, Barclays reduced the "buffer zone" before customers are clobbered with charges. It used to be £25 but is now just £5.

These fees are a huge earner for the banks - consumer watchdog Which? reckons that in total they are charging customers £3bn a year for going over their authorised overdraft limits.

Barclays, which has almost 11 million current account holders, this week defended the increased fees, saying it was the first time they have gone up since September 2003, and that they were "in line with the marketplace". To be fair to Barclays, it is not the worst offender on fees.

As our table supplied by Moneyfacts shows, Halifax - which has been snatching large numbers of disaffected current account holders from the "big four"- charges the biggest unpaid fee for bounced cheques or returned standing orders and direct debits. Its current account holders have to cough up £39. Halifax does cap the fees... at a maximum of three per day! Close behind are NatWest and Royal Bank of Scotland, each with an unpaid fee of £38. At the other end of the spectrum, internet banks Smile and Cahoot charge £20.

On the paid referral fee front, Barclays' hike means it will be charging the same as Lloyds TSB and NatWest/RBS, but more than HSBC. However, Cahoot, Smile, fellow internet bank Intelligent Finance and First Direct are among those that don't impose this fee at all. Which makes you wonder: if they can manage without it, why can't the others?

Nick White at price comparison website uSwitch.com says the Barclays "fat cats" are getting fatter at the expense of account-holders. He adds: "Unless consumers are prepared to let their banks know that enough is enough and let their feet do the talking, they will only have themselves to blame."

Alliance & Leicester is still topping the current account best buy tables with Premier Direct, paying 4.89% gross interest (with a few strings attached). The Smile and Nationwide accounts both pay 3%.

Had enough of bank overdraft charges, and credit card charges so high and growing so quickly that you struggle to get back into the black?

Millions find themselves glued to this treadmill. But now they have a chance to show banks how they feel.

Safe - the Society Against Financial Exploitation - is organising a demonstration against excessive bank charges outside the Office of Fair Trading headquarters in London next Friday March 3 at 2pm.

Safe organiser Elaine Williams says: "We are demonstrating outside the OFT because we are fed up with the way the organisation is failing to protect the consumer but moving heaven and earth to protect the integrity of the banks."

Stephen Hone of Bank Action Group has launched a legal action on charges against eight banks. He says: "Anyone with a bank problem should attend."


The Guardian

British household debt grew at a frightening 10.2pc last year, while the economy as a whole managed a piffling 1.8pc. We hear a lot about our trade deficit and our budget deficit but it is the underlying personal sector deficit which is the real horror show in the UK economy at the moment.

Our revelation in yesterday's paper that personal debt at £1,158 billion for 2005 was more than £30 billion higher than the nation's entire £1,127 billion economic output has caused widespread consternation among many people except, that is, with the one person who ought to be more worried than most - Gordon Brown.

Our collective debt has been likened to an economic iceberg. Many consumers are going to founder on this financial hazard which, bizarrely, remains almost completely submerged from most people's view in a mist of myopia, including the Chancellor's it would seem.

At a time when the consumer sector is holed below the water line and rapidly listing to starboard, Mr Brown seems remarkably sanguine about the state of the nation's finances. So relaxed is he that he spent yesterday talking about the Government's security measures, ID cards and a new law to ban the glorification of terrorism as he prepares for what he no doubt believes will be a glorious promotion to succeed Tony Blair when the Prime Minister hands over the keys to 10 Downing Street.

However, the decade of debt, which the naughties have turned into, will not only catch up with those consumers who have been profligate with credit cards, store cards, excessive mortgages and equity withdrawal and every other form of hock that the financial services industry can dream up. It will also catch up with Mr Brown and be the ruin of his political career.

It is not only consumers who are now drowning and no longer waving. The public sector's finances are also out of control, the only fix being an increase in taxes or a cut in spending, or both.

But add to this the impact on the economy of a consumer slow down and you have a slump the likes of which we have not seen for more than 15 years. All the signs are there. Rising bankruptcies, rising repossession, an increase in business failures plus a sharp slow down in high street spending in January and figures from the City that show a big increase in the demand for savings. It's all one way traffic down bad news boulevard at the moment.

Mr Brown's legacy will be this ugly fall out from the decade of debt, a legacy that will undermine his premiership, should he get one, and give his own successor an impossible job.

But the careers of a few politicians are nothing compared with the damage about to be visited on the United Kingdom from its debt-fuelled spending binge.

Daily Telegraph

STUDY: CONTROVERSIAL BANKRUPTCY LAW REFORMS NOT WORKING – 97 PERCENT UNABLE TO REPAY DEBTS, MOST PUSHED TO BRINK BY CRISIS

NACBA Analysis of More than 60,000 Consumers Processed Under New Law
Asks: "Where Are the Deadbeats" Congress Expected to Find and Stop With Onerous Rule Changes?

WASHINGTON, D.C.//February 22, 2006///The first analysis of tens of thousands of consumers seeking protection since a new federal bankruptcy law went into effect last October concludes that the changes put in place by Congress are not working as intended. The report by the National Association of Consumer Bankruptcy Attorneys (NACBA) finds that of the 61,355 consumers seen so far by credit counseling firms – the required first stop under the new bankruptcy law – nearly all (97 percent) are unable to repay any debts and that four out of five would-be filers (79 percent) were forced into dire financial straits by circumstances beyond their control, such as the loss of a job, catastrophic medical expenses or the death of a spouse.

Entitled "Bankruptcy Reform’s Impact: Where Are All the Deadbeats?," the NACBA analysis is based on data provided by a cross-section of six large and small credit counseling firms that have been authorized by the U.S. Justice Department’s Executive Office for U.S. Trustees to provide bankruptcy screening. The credit counseling firms responding to the NACBA survey were: Money Management International (Houston, TX), GreenPath Inc. (Farmington Hills, MI), Springboard Nonprofit Consumer Credit Management (Riverside, CA), Hummingbird (Raleigh, NC), Institute for Financial Literacy (Portland, ME) and ByDesign Financial Solutions (Los Angeles, CA).

Brad Botes, executive director, National Association of Consumer Bankruptcy Attorneys, said: "Contrary to the claims of proponents of bankruptcy law changes that they would zero in on the alleged legions of ‘deadbeats’ who supposedly were crippling the U.S. economy with ‘billions of dollars in losses associated with profligate and abusive bankruptcy filings,’ the federal bankruptcy law changes that went into effect on October 17, 2005 are doing no measurable good whatsoever. Instead, they have put new hurdles in the path of people who are already flat on their back due to financial crises over which they have no control, such as the loss of a job, catastrophic health care bills, and so on."

Botes noted that bankruptcy filings are down because many Americans may mistakenly believe that the courthouse doors are barred to them. The NACBA executive director said: "Credit counseling organizations now know what bankruptcy lawyers and other experts said all along: Congress got it dead wrong when it passed the bankruptcy law. Even though the process is now more cumbersome, time consuming and expensive than before, consumers who need help should still seek out a bankruptcy attorney to explore their options and figure out how to navigate this trickier and more confusing process."

John Rao, attorney, National Consumer Law Center, said: "Bankruptcy judges, attorneys, academic researchers and others warned Congress that the bankruptcy filing rate was a ‘symptom’ and not the ‘disease’ itself. So long as people lose their jobs, have uninsured medical problems, and face other catastrophic circumstances, they will need the protection of the bankruptcy system. This data is evidence of that. All Congress has succeeded in doing with the new law is to delay and drive up the cost of bankruptcy protection for those who desperately need it."

Leslie E. Linfield, executive director of the Institute for Financial Literacy, which is a credit counseling organization, said: "The clients receiving credit counseling under the new bankruptcy law are at their most vulnerable. Many of them are at risk of foreclosure, wage garnishments or other pending legal actions. Bankruptcy for most is their only option and a bankruptcy alternative, such as a debt management plan, is inappropriate. Where the credit counseling industry has the ability to truly serve these clients is assisting them in the creation of family budgets, providing information on available social services and educating these clients in sound financial management."

The following are key findings from a National Association of Consumer Bankruptcy Attorneys survey of six major credit counseling agencies that have dealt with a total of 61,335 consumers under the new federal bankruptcy law:

* Almost none of those seeking bankruptcy protection are able to repay their debts. Fewer than one out of 20 consumers (3.3 percent) were candidates for paying off what they owe under a debt management plan (DMP), with the remaining 96.7 percent requiring the same bankruptcy filing that they would have needed before the new bankruptcy law went into effect. As the NACBA report notes: "Thus, the credit counseling requirement under the new law, designed to steer debtors who could repay their debts into a debt management plan, simply imposes new costs and time burdens on individuals who can ill afford either – and clearly are not the people for whom a DMP is feasible."

* The vast majority of Americans seeking bankruptcy protection are victims of unfortunate circumstances, not reckless spenders seeking to shirk their debts. Four out of five consumers (79 percent) seen by credit counseling agencies are suffering from debt "caused by circumstances beyond their control (e.g., loss of a job, medical expenses, death, divorce or other change in marital status, increased minimum payments on credit cards, predatory lending, and so on). As the NACBA report concludes: "Thus, the masses of expected deadbeats who were supposed to be identified under the new law and forced into debt management plans have not materialized." Only about one in five of the respondents (21 percent) were identified as suffering from debt due to "circumstances within their control". Credit counseling agency respondents explain that this number includes all of those who did not deliberately seek out to get in over their heads financially but did not fully understand how fees and finance charges associated with credit cards put them deeper and deeper into a hole from which they could not escape, except through bankruptcy.

Credit counseling firms ranged in size from small (with 100 consumers seen) to quite large (with nearly 23,000 consumers seen). The end date for the consumer-based information provided by the credit counseling firms ranged from January 31, 2006 to the first two weeks of February 2006. The highest estimate of consumers being able to make repayments under a credit counseling DMP was 5 percent, with the low being in the 1-2 percent range. Estimates of the number of Americans seeking help for financial circumstances beyond their control ranged from a high of 95 percent to a low of 65 percent. Of those believed to be seeking protection for financial problems within their own control, the range was from a high of 35 percent to a low of 5 percent.

The NACBA report contrasts the pre-passage comments of opponents of the legislation, who warned that the bankruptcy law changes would not work, and proponents who argued that the new hurdles in the law would slow down or stop abusers of the bankruptcy system. The report quotes House Judiciary Committee Chairman F. James Sensenbrenner, Jr. (R-Wis.) as predicting the bill would stop "billions of dollars in losses associated with profligate and abusive bankruptcy filings." Senator Charles Grassley (R-Iowa) said the bankruptcy changes would clean up "a convenient financial planning tool where deadbeats can get out of paying their debt scott-free"

No one has an automatic right to credit, but if you are refused on the basis of your credit rating you can tackle the problem.

BBC News explains how lenders decide whether you are credit worthy or not.

Most High Street lenders will make a decision on whether or not to grant you credit on the basis of information supplied by the country's two leading credit reference agencies - Experian and Equifax.

These two firms compile credit histories from a host of different sources, including the electoral roll, county court judgements and how effectively past debts have been paid.

You record will be flagged up if you have had an abnormal number of credit checks carried out - everything from buying a freezer on an interest-free deal to opening a new credit card will leave an electronic footprint in your credit history.

Experian and Equifax do not turn down your request and neither do they hold a blacklist of individuals and properties.

The decision to refuse credit will be made by the lenders, based on their own criteria. However, if you are refused credit you could check your credit history to make sure no mistakes have been made.

Within 28 days of your last contact about the credit deal, ask the lender for the name and address of the agency which provided the information. You can then write to the agency asking to see all the information about you on their files.

To do this you will need to send a £2 fee, give your full name, address and postcode, as well as the details of any other locations you have been living during the last six years.

Also, if you are a sole trader or partnership, give your business name and address in case information is held under these details. The agency must reply within seven days.

If the decision to refuse you credit was made only by a computerised credit scoring system then you have the right to ask the lender to review the decision.

Even if the decision was not taken by a computerised process alone but you consider the decision to refuse you credit was unjustified or wrong, and there is further relevant information which may change the lender's mind, you should ask the lender how to go about having the decision reviewed.
You can ask for your credit history to be changed if it is incorrect or includes details about people with whom you have no financial connection.

You should also be able to get notes attached to explain certain periods in your history. However, you can't get information removed just because you might find it embarrassing.

Many national newspapers carry adverts for companies purporting to repair your credit rating.

However, these firms offer no magic wand and will charge a fee.

You do not have to be refused credit to see what information credit reference agencies hold about you. You have the right at any time to ask them in writing for a copy of your file.

The Information Commissioner can provide consumer guidance leaflets with further advice.

Views From The Myvesta Forum......

Hi James thanks for sharing your views.

Regarding lower value debts would you not, for example, utilise other statutory tools such as the Administration Order? Equally what about token payment strategies as a way of putting in place a 'stepping stone' approach to deal with a transitional peiod? Take your point with many DMPs - although they still have a definitate place as a useful debt tool.

At Myvesta as we are a not for profit organisation we tend to speak with people everyday that have been 'processed' for an IVA or other debt management option and if they do not meet the criteria they are simply given a 'free' self-help pack (if they are lucky) and then for all intents and purposes shown the door (and it would seem that this is true of both commercial and some supposedly non commercial organisations)

The missing ingrediant here is 'intervention' though and perhaps this is a more suitable word than 'free'?

There are many many organisations (charitable & commercial) that profess to giving free advice and help. The reality of the situation is that most organistions only deal with unsecured debts and do not actually intevene with priority debt situations or disburse to priority creditors as part of a comprehensive debt management strategy.

For many consumers facing difficult situations that require actual intervention they are ultimately ignored by these organisations that profess to help but actually are only prepared to help up until a point.

I am a great believer in helping people to help themselves and it is equally important that individuals 'pull their own weight' and stick to their part of the bargain in a strategy that will help them overcome a dificult money problem etc.

There is far too much 'tea and sympathy' offered under the guise of 'free advice' that actually achieves very little in a lot of cases.
Free is useless unless it actually delivers a result. Likewise though if organisations use this word free then they should also clarify exactly what 'free' actually 'gets you for your money' So if I am an indebted consumer (without any unsecured debt) but would really benefit form a debt management plan to deal to help bring a combination of priority debts under control then the word free as used by most organisations (commercial or charitable) really doesn't mean a great deal to me as I would not be offered any actualy 'intervention'

This is were organisations like the CAB do offer a point of difference (albeit the quality of advice is far from consistant) as they can often offer 'intervention' in such cases depending on resource.

Any original thoughts?


Kind regards

Sean
http://www.myvesta.org.uk

Thousands of Scottish pensioners do not realise they are eligible for state benefits, ministers have said.

It is thought that around 177,000 Scottish pensioners are not taking up their weekly Pension Credit allowance that comes to an average of £40 a week.

Around £360 million in benefits goes unclaimed every year, it is thought.

David Manion, the Age Concern Scotland chief executive, believes many pensioners find the scheme difficult to understand.

"Pension Credit has made a massive contribution to lifting many pensioners above the poverty line, however, the system is still too complicated for many pensioners to navigate," he told the BBC.

Stephen Timms, the minister for Pension Reform, said many pensioners were unaware how easy it was to claim their allowance, which can be backdated.

"All it takes is a call to the Pension Credit application line to help ensure that you get all of the money you are entitled to, including help applying for benefits such as Pension Credit or Council Tax Benefit."

The credit scheme replaced the minimum income guarantee system in 2003 and is designed to encourage people to save more for old age.

Credit card companies are becoming increasingly reluctant to hand over interest free loans with the lending market starting to bite.

That is the view of industry expert Andrew Hagger, who is the head of news and press at Moneyfacts, the independent personal finance information site.

Mr Hagger says that banks are becoming increasingly stringent with their lending provision, meaning debtors will come under increasing pressure as credit scoring and the rules surrounding loans are tightened.

"The banks are looking to make sure the people they lend to will be able to repay what they owe," he explained.

While noting that "in the past credit scoring has possibly been on the lax side", Mr Haggers says this is all set to change.

The comments come as several of the high street's biggest lenders announce the impact of bad debt.

Lloyd's TSB today revealed that the firm's retail banking arm has suffered a seven per cent profit slide, with non-performing loans rising by a third.

Lloyds TSB has seen a dramatic rise in the number of people saddled with debts, as it wrote off more 'bad debt' than ever before in the last year.

Revealing profits overall had risen by four per cent, the figures masked a sharp impact on its high street banking operation from those unable to repay their loans.

The firm's retail banking arm saw a seven per cent profit slide, with the provision made for "non-performing loans" up by more than a third.

Lloyds said it had already sought to offset the issue by taking a number of actions over the course of the year to tighten credit underwriting.

"It is not in the interests of the individual customer or the group to lend money to a customer who cannot afford to repay," chief executive Eric Daniels said in a statement accompanying the profits.

"The group takes its responsibilities in this regard very seriously and has a responsible lending programme, to ensure we help our customers clearly understand the nature of the agreements they are entering into and we confirm affordability before agreeing to any borrowing requests."

Lloyds said it would be making further moves to crackdown on borrowers who were unable to meet repayments, with the implications significant for both the bank and consumers generally.

The total value of debts the bank wrote off during the year swelled to £905 million - well up on the £229 million set aside for bad debts the year before.

Banks' willingness to lend to consumers has come under increasing scrutiny recently, with calls for tighter controls on the part of the lenders.

The High Court is being called upon to issue a "declaration" that bank charges are illegal.

Stephen Hone, law student from Plymouth, Devon and member of the anti-charges Bank Action Group, has issued a writ against eight high street banks, including NatWest, HSBC and Halifax Bank.

He argues that bank charges for unauthorised overdrafts and bounced cheques are excessive and not related to the actual costs of unauthorised borrowing.

If Mr Hone's case is successful, banks could be prevented from levying such charges against customers, with borrowers then able to back date compensation claims for the past six years, the Guardian reports.

Banks typically charge around £38 for a bounced cheque or unauthorised overdraft and it is estimated that the fines net the banks around £3 billion every year.

Mr Hone has already successfully sued Abbey National for levying a £32 overdraft fine against him. He won by default after Abbey declined to defend the charge.

Debt management companies are targeting the lucrative market for individual voluntary arrangements (IVAs) in an attempt to cash in on the growing debt problems among the middle classes.

IVAs are attracting middle-class debtors who are fearful of the humiliation of bankruptcy, which can strip them of all valuable possessions. Under an IVA, a debtor will not lose his home or professional job, provided that payments are kept up. An IVA typically lasts five years and costs £5,000 to set up. But they are appropriate for only a small number of debtors.

But the soaring number of people taking out IVAs — the market more than doubled to 20,293 over the past two years — has resulted in debt management firms increasingly offering IVA services to wealthier borrowers, who usually have debts of about £60,000.

Baines & Ernst and Gregory Pennington, the two leading debt management companies, have both set up specialist IVA arms. Bains & Ernst set up Blair Endersby in late 2004 and Gregory Pennington set up Freeman Jones in January 2003.

A spokesman for Gregory Pennington admitted to Times Money that the company is a big player in this market Call centre staff at Bains & Ernst and Gregory Pennington decide whether a debtor should be referred for an IVA — the debt management firm receives a fee for every IVA that is arranged.

Gregory Pennington says that a conversation, which lasts between one and two hours, takes place between the customer and a debt adviser, during which a variety of options will be discussed including a remortgage, a debt management plan, bankruptcy or an IVA.

Gregory Pennington says that the number of IVAs it promoted rose by a fifth last year, with 102 debtors entering into schemes in December 2004. The company says that the increase is a result of rising levels of overindebtedness and a growing awareness of IVAs as a solution.

But Gill Hankey, a director at the Bankruptcy Advisory Service, is critical of the process by which debt management companies steer debtors into IVAs, which she describes as an “IVA factory” approach.

She questions whether it is appropriate for call centre staff to give advice about IVAs to people who may not even know what an IVA is before they make the call. Mrs Hankey says: “Debtors are being dealt with by call centre staff who do not have the expertise or experience to advise them properly whether an IVA is the right option. The insolvency practitioner (to which the IVA is referred) is effectively rubber-stamping the IVA proposal made by a person in a call centre.”

Gregory Pennington says that clients are not misadvised and it points out that the rate of IVAs that fail is currently in “single figures”. Bains & Ernst refused to comment.

The Office of Fair Trading (OFT) laid down guidelines of best practice for the debt management industry in 2001.

The guidelines are designed to ensure transparency in the promotion and advertising of debt management plans, which are often taken out by lower-income groups.

However, Ms Hankey says that she increasingly encounters cases of middle-class debtors who have been wrongly advised to enter into an IVA by debt management firms.

Even well-educated people can take the wrong advice when under the intense strain that overindebtedness brings, she says. If you do take out an IVA when it is not the right debt solution for you, the consequences can be severe.

David Mond, chief executive of ClearDebt, a specialist IVA company, says: “Most IVAs have a ‘windfall clause’, which allows banks and credit card companies to claw back any unexpected large sums a debtor receives, up to the full value of the debt owed.

“In one case we recently encountered, a woman would have lost the home that she was about to inherit from her terminally ill parents if she had undertaken an IVA.”

Nick Pearson, national debt co-ordinator of AdviceUK, says that debt management companies are attracted to the high fees that can be generated by offering IVAs.

“Either we start offering IVAs or we will see more cases of vulnerable consumers falling into the hands of companies that are motivated by profit,” he says.

IVAs versus bankruptcy

An individual voluntary arrangement (IVA) usually lasts five years and costs £5,000 to set up. Three quarters of lenders have to sign up to it before it can go ahead.

Repayments are based on a borrower’s income and expenditure. Payments go into a trust account, which the insolvency practitioner uses to extract its fees and to pay creditors.

If government proposals for a new, streamlined IVA — SIVA — come into force, the size of the IVA market could rise to 100,000 by 2008. Borrowers who owe less than £30,000 would be able to sign up to an IVA, even if it is against the wishes of their lenders.

If you choose bankruptcy instead of an IVA, your home and valuable possessions such as your car can be seized. Bankruptcy is a drastic course of action, but the advantage is you wipe the slate clean and a bankruptcy can be discharged within a year.

Forum Question....

During 2004 I entered into an IVA as I was unable to pay off my debts in full. At the time I was self employed, recently separated and the debts were in the region of £194,000.

Alas, because of the protracted time taken to get the IVA in place I suffered visits from Bailliffs to my shops and the only way to get them to leave without all the stock and equipment was to pay them large sums of cash. The result was the cashflow of the business was crippled before the IVA could protect my livelihood.

Things never recovered and the IVA failed, the businesses closed and I have spent the past year waiting for one of my creditors to petition for my bankruptcy. This has still not happened. As part of my second ex wifes divorce, she has started financial settlement proceedings and it was during this process that I worked out my current debt level to be around £235,000.

The only assetts I have are a repossessed house with approx £90,000 equity (owned with second ex wife jointly), a jointly owned property with my first ex wife with approximately £50,000 equity and a couple of endowment policies linked to the latter property.

My debts mostly consist of loans and credit cards, but in addition I have rent on the shops, business council tax, VAT, PAYE, and trade suppliers to pay back.

I assume bankruptcy is my only option but I have a few questions.

How long after I fill in the forms and return them does it take to be made bankrupt?

What assets other than the above will the official receiver be looking to seize?

Will it include general household items?

I live with a new partner and we are not married. Are her assets at risk?

I understand that "surplus income" is claimed by the official receiver but what living expenses are taken into account? (I'm currently unemployed and am concerned that working could make me worse off when benefits etc are taken into account)

Will my partners income be taken into account when arriving at surplus income figures?

The second property is still occupied by my ex wife and my two daughters aged 15 and 17. Will that property have to be sold after the first 12 months of grace if she cannot buy out my share of the equity?

Any advice or comments would be much appreciated.

David

Forum Answer....

Hi Just Dave,
I am sorry to hear about your difficulties and it is a shame that the IVA option did not deliver resolution for you. Was an Interim Order not put in place by the Insolvency Practitioner that you had been dealing with by the way?

This could have possibly put a stop on the recovery action undertaken by the bailiffs whilst the IVA proposal was being prepared.

From my understanding of the situation you still have assests of £70,000 plus ? (£45,000 share of equity in the first property, £25,000 share of equity in the second property plus some endowments linked to the second property?)

As such an IVA may still be a real option if it is possible to utilise these assets. It would be worth expoloring at least. The IVA could still deal with the debts that you have listed.

In terms of your bankruptcy questions Just Dave, the time period very much depends on how busy the court is between presenting your debtors petition and the court allocating a hearing date. I believe the average time is about 1 month presently although this will vary from court to court.

Because you have material assets then the Official Receiver will most likely appoint a Trustee In Bankruptcy to act as the Supervisor of your estate. A trustee is simply a commercial insolvency practitioner that will be (probably) appointed via a rota system.

I very much doubt that your partners assests will be at risk ( I am assuming that you are not married?)

If you have no surplus income then you will not be expected to make monthly payments into the order.

It is highly possible that the second property will be sold further down the line if the circumstances are as you say yes.

The following video clip links may be of assistance to you Just Dave:

http://myvesta.org.uk/media/video/bankruptcy/index.html

http://myvesta.org.uk/media/video/iva/

I would also suggest that you call Myvesta on the free-phone number to speak with an advisor about your situation. I would be happy to assist myself should you wish to ask for me.

Hope this helps!
Forum Response....

I am somewhat surprised to hear that an IVA may still be an option, maybe if I fill you in with more details it may shed more light on the possibilities.

As I stated in my post, the IVA failed because of the visits from the bailiffs crippling the business cashflow. An interim order was placed but only once the Insolvency Practitioner was satisfied that he had all the details for the IVA proposal. This took some time, partly my fault for struggling to get all the answers, and partly his fault for not acting on the information I supplied and duplicating requests for information he already had. Regardless the IVA was agreed too late and inspite of my best efforts the cashflow dried up and I had to close the shops. The IVA had been agreed in January 2005 but I was unable to make any of the payments required as I was ploughing everything back into buying stock / paying bills to try and save the business. A certificate of non compliance was issued in due course.

My estimate of my current debt level does not allow for any interest that has been charged by my creditors since the IVA failed. My estimate of the amount owed in VAT and to the tax man is just that, an estimate. I do not have completed accounts for my final two years of trading as I was unable to afford the accountants fees. Some other debts such as the final electric bill, rents etc are not known exactly. Small problems perhaps, but these are the ones that take time and hold up an IVA proposal.

The equity in one property (jointly owned with ex wife number 2) which has been repossessed is the subject of a financial settlement case as part of the divorce proceedings and as such the amount of equity actually available may change. My ex being a greedy *!*! is trying to get far more than the 50% that would be fair. The judge will decide I guess in the end.

The equity in the other property is again jointly owned, this time with ex wife number 1. A financial settlement has never been reached with her.

The endowments are joint with ex wife number one. She will try and claim they are rightly hers as she paid contributions since we separated in 1997. However, I paid the mortgage up to October 2004 so I have paid far more over the years than she so 50/50 is more than reasonable division if I can persuade her. (or rather a lawyer can!)

Regarding any possible IVA utilising the equities/endowments, if this was acceptable would they expect me to pay if I started work afterwards? I understand IVA's are usually 5 years so the equities etc couldn't be used to do an instant IVA could they?

In terms of fees associated with IVA's in my current situation I would have no money to pay such fees, especially up front. I know they are built into an IVA in some instances but what if the IVA proposal were to be rejected? My creditors from the previous IVA are unlikely to be favourable given the non compliance. The creditors from the period after the first IVA are an unknown quantity of course.


In terms of bankruptcy I think you missed my point slightly. Whilst I have no income now, if I were to return to gainful employment how much would the Official Receiver take? What do they allow as reasonable living expenses?
Forum Answer....

Hi Just Dave - All of this boils down to the following essentially.

The options that are available to you (be they bankruptcy, IVA or token DMP) ultimately represent a personal choice for you to make.

Bankruptcy certainly is an option (and yes you may well have to undertake an Income Payments Order if you have a surplus income), an IVA (if it is a stronger commercial option than bankruptcy) may also be an option too (regardless of what has happened in the past).

If you wish to call in and speak with an advisor then we will be able to discuss the options within the context of your financial circumstances now, your financial circumstances in the future (as best you can anticipate) and just as importantly - how you as an individual feel about your situation and what you as an individual want to do about the money that is owed to your creditors.

The choice is yours Just Dave and we would be happy to discuss the benefits and implications of these options with you.

Best regards

Sean

Record numbers of consumers are declaring themselves bankrupt to escape having to repay vast personal loans and debts racked up on credit cards and store cards.

Last year 36,000 people declared themselves bankrupt

The Department of Trade and Industry published shocking new figures that lay bare how people are struggling to repay a £1,000bn debt mountain.

In the third quarter of last year, there were 17,562 individual insolvencies, an 11.6 per cent increase on the previous quarter and a 46 per cent increase on the same period last year.

Last year, 36,000 declared themselves bankrupt. Insolvency experts believe that this figure could top 50,000 this year.

That would vastly exceed the totals reached in recessions of the past. For example, in the brutal recession of 1992, 36,794 people declared themselves bankrupt.

There has also been a significant shift in the causes of these bankruptcies. In the late 1990s 60 per cent of all bankruptcies concerned a failed business. Now, 60 per cent of all bankruptcies are caused by consumer debt.

Many insolvency experts believe that the Government's changes to the bankruptcy rules have exacerbated this situation.

Much of the sting of bankruptcy was removed in the 2002 Enterprise Act, which became effective from April 2004.

The new rules allowed people to have their debts discharged after one year rather than three. This means that after this period any income the bankrupt receives does not have to be repaid to creditors. In reality KPMG says 51 per cent of bankrupts are discharged after just eight months.

These changes were supposed to help failed entrepreneurs get back on their feet quickly if their business collapsed. But it is cash-strapped consumers who have been the main beneficiaries.

"The Government has created a system which has removed the stigma of bankruptcy," says Mark Sands, the head of personal insolvency at KPMG. "It has become so much easier. A culture encouraging bankruptcy is spreading in pubs by word of mouth."

Numerous celebrities have been declared bankrupt. They include George Best, the ailing footballer; Gary Glitter, the disgraced rock star; Clarissa Dickson Wright, the TV chef; and Kevin Maxwell.

Declaring oneself bankrupt normally takes no longer than 48 hours. Applicants fill in a petition which can be downloaded from the Department of Trade and Industry's website www.insolvency.gov.uk.

The applicant then takes the form to the High Court or to the local County Court, where a judge will make the bankruptcy order.

The court appearance, which normally lasts less than 15 minutes, is usually arranged on the same day as the application is made. A fee will be charged by the court. This is £467.

But although the process is quick, it is not necessarily painless.

Creditors can seize most of a person's assets. This will include any savings, investments, plus the equity in the family home.

Bankrupts, who in the past have included the former MP Neil Hamilton, can also be forced to sell their homes and possessions to raise funds for the creditors.

The only personal things you are allowed to keep are your clothing, furniture, and bedding.

You may also keep any tools, vehicles and books necessary to your employment.

If you are married, your spouse's assets can also be taken and any business assets will also be seized.

The only asset a bankrupt can keep is a company or private pension entitlements. However, you may be forced to give up any bonus payments made into a pension scheme shortly before you petitioned for bankruptcy.

Once someone has been made bankrupt they cannot seek credit of more than £250 without disclosing that they are a bankrupt. A bankrupt cannot manage a limited company or act as a director without a court's permission.

A bankrupt is also forbidden from holding certain positions in public life - he or she cannot be an MP, JP, school governor or the trustee of a charity or a pension fund.

The Government has recently closed a loophole that was being exploited by hundreds of graduates to avoid paying back thousands of pounds of student debt.

Many students simply chose to bankrupt themselves upon leaving university. As most had few other assets to seize, this in effect allowed them to walk away from their debts.

As a result, student loans are now exempt from bankruptcy legislation.

However, a recent graduate could conceivably still pay off a student loan with a credit card or personal loan then declare themselves bankrupt and wipe out their student debt.

However, not everyone agrees that the steep rise in bankruptcies is the result of legislative change alone. "We don't think the legal changes have had that much affect," says Vicky Redwood, a UK economist at Capital Economics.

"Bankruptcies have been rising for three years - well before the law changed. The new regime only applies in England and Wales, and yet we've seen a strong surge of insolvencies in Scotland too."

Out-of-control spending appears to be one big reason. But bankruptcy is not the only option for people struggling with debt.

Instead many are opting to make an individual voluntary arrangement instead. This is a legally binding deal made between a debtor and his or her creditors.

Normally, a large proportion of the debts - typically half - are erased, but the debtor is then obliged to make monthly payments to their creditors for a number of years, typically five.

Sands says such arrangements offer a more positive and proactive option that gives individuals greater control over their financial future.

He adds that they "are also popular with creditors . . . they know they've got a better chance of getting some of their money when they might have thought they would have to write it all off as bad debt."

Such voluntary arrangements may well become the future of how indebted consumers cope with financial crisis. In the third quarter of this year, there were 5,519 arrangements, up 95 per cent on the same period last year.

FOR individuals sinking under debt, bankruptcy is often the most attractive option.
But the Government and insolvency experts are urging individuals on the brink of financial ruin not to walk blindly into bankruptcy but to consider another option: the individual voluntary arrangement (IVA).

These agreements, a product of the Insolvency Act 1986, enable the debtor to stave off bankruptcy by coming to an agreement with his creditors to pay off a percentage of his debts over a given period.

There are no hard and fast rules — an IVA is essentially a haggling process between the individual, his insolvency practitioner and creditors. Generally, though, the debtor will pay a lump sum upfront to the creditors and the insolvency practitioner, followed by a series of monthly payments.

The repayments are calculated through an analysis of the debtor’s income and expenditure. Once agreed, the repayment programme forms part of a legally binding contract, although the creditors can still force the debtor into bankruptcy if he does not meet his side of the deal. There is one other catch: an IVA can go ahead only if creditors representing more than 75 per cent of the debt agree to the deal.

But for the debtor, an IVA also offers many attractions. He avoids the stigma of bankruptcy and the severe penalties. For people whose careers could be put at risk by bankruptcy, such as lawyers and financial practitioners, the IVA is particularly attractive.

The Government has its own interest in encouraging uptake. IVAs are dealt with by commercial insolvency practitioners rather than the office of the Official Receiver at the DTI, so the greater the uptake of these, the less pressure on the Government’s resources.

While there are about 9,000 bankruptcies each quarter, only a tiny fraction of that figure enter into IVAs. The reasons, says Nick Hood, senior partner at Begbies Traynor, the insolvency experts, are many. He explains: “Some individuals go straight to the court and file for bankruptcy, without seeking the service of a professional insolvency practitioner, so they never hear about the alternatives. Another problem has been the number of rogue practitioners who take a fee to set up agreements that are totally unrealistic. They have tarnished the reputation of the IVA.”

Cost is also a deterrent, with the professional and other fees often looking hefty compared with the debt owed. And, of course, the agreements are an option only for those with sufficient assets or an income stream that will allow them to make an offer to creditors.

Insolvency experts say that the Government must boost awareness and bring down the costs if it is to succeed in increasing uptake of the IVA as an alternative to bankruptcy.

The key for those considering an IVA, Mr Hood says, is to take professional advice early on. Reputable insolvency practitioners usually do not charge for initial advice.

R3, the insolvency association, warns anyone entering into an IVA not to agree to any deal that is not realistic and achievable. “It could still fail later and you might then face bankruptcy in two or three years’ time.”

R3 publishes a guide to IVAs, Is a Voluntary Arrangement Right For Me?, which is available on the website at www.r3.org.uk/publications. The DTI’s A Guide to Bankruptcy is available at www. insolvency.gov.uk.

The number of bankruptcies in Wales increased dramatically during 2005, the Western Mail has reported.

Figures from the Department of Constitutional Affairs revealed that the number of voluntary bankruptcies in the country jumped from 1,175 in 2004 to 1,531 last year - a rise of 30 per cent. The number of Individual Voluntary Arrangements (IVAs) also increased by a huge 117 per cent, with 7,002 people taking up the schemes.

The newspaper reported that many of the bankruptcies and IVAs executed came from students. Despite student loans being protected from bankruptcy proceedings, 900 students still filed for them anyway to gain protection from other creditors.

John Bangham, of KPMG Cardiff, said that since Christmas credit helplines had seen an increasing amount of calls, and that 2006 was likely to be another record year for bankruptcies and IVAs.

"The IVA is an increasingly popular way forward for many people in financial difficulty as it offers them an opportunity to face up to their problems, draw a line in the sand and restructure their finances," he said.

People receiving state help who are advised to take the voluntary route to avoid bankruptcy often find it is not their best option, writes Lisa Bachelor

People on state benefits with huge debt problems are being put into expensive, and often inappropriate, repayment plans by some of the growing number of firms specialising in insolvency.

One of the biggest debt advice firms, Debt Free Direct, has told Cash that it sees no problem in recommending individual voluntary arrangements (IVAs) to people in receipt of state benefits.

'If they cannot afford to make payments and retain an adequate lifestyle, then we wouldn't put them on an IVA,' said Andrew Redmond, chief executive of Debt Free Direct. 'The processes we go through to determine whether someone can afford to make repayments or not are very rigorous. Of all the people who phone us, only 4 per cent are put on to IVAs. There is no reason that because somebody is on benefits they should be given a more lenient route, but we always give people the option of bankruptcy if they prefer.'

IVAs are the much-touted alternative to bankruptcy, which involves the debtor coming to an agreement with his or her creditors as to how the debt will be paid off. An insolvency practitioner working for an IVA company formulates a mutually acceptable repayment plan with his client's creditors, typically lasting for three to five years, for which the debtor often pays a fee.

However, other debt specialists believe that IVAs are totally unsuitable for people on benefits. Joanne Hankey, director of the Bankruptcy Advisory Service, an independent debt advice service, said: 'If an individual has no assets and is in receipt of state benefit, we believe that an IVA is inappropriate. State benefit is means-tested and only available to those with an income below a certain level. The benefit made available is to provide them with a basic standard of living.'

She said that the number of people seeking help because of failed IVAs has escalated over recent months. 'Since late last year we have become aware of some organisations pushing the benefits of these IVAs when this type of arrangement is not suitable for the debtor. These arrangements are then either rejected by the creditors or, when they are accepted, fall flat on their face within the first three months. This is particularly the case for those on state benefits.'

Once an IVA is proposed, it has to go through the court, but whereas it used to need a judge's approval in the form of an interim order to go ahead, since 2003 it can be filed with no one having read it. 'It has opened up the system to poor advice,' said Mark Sands, director of personal insolvency at KPMG.

Once the IVA has been approved by the creditors, it goes under the control of a supervisor for the duration of the arrangement. Due to the high volume of IVAs now being proposed, creditors typically vote on the arrangement by post. They often take advice on their decision from an accountancy firm such as KPMG.

'If we see any proposal based on benefits, we would see that as a warning sign and advise creditors to check it has been based on best advice,' Sands said. 'We would need to go back and check that the debtor has really understood what they are getting into.'

One couple spoke to Cash about their experience with Debt Free Direct. Katy (not her real name) approached the company after seeing an advert on national television. She is disabled following an industrial accident and her husband, Mike, is her full-time carer.

The couple, who have two children, live in council accommodation and their monthly household income, comprising income support, disability living allowance and carers allowance, plus child benefit, is £1,535.84. They believed that creditors were owed about £22,000 in total.

Debt Free Direct recommended that they propose an IVA requiring them to make monthly contributions of £458 initially, rising to £515 when their state benefit increased. But although the IVA was accepted by their creditors, they were unable even to make the first payment.

'I realised shortly after agreeing to the IVA that we just couldn't afford those repayments,' said Katy. 'You're clutching at straws when you're up to your neck in debt and just take the first available solution. I now realise that we should have declared ourselves bankrupt.' The couple have now done that.

Redmond, of Debt Free Direct, said: 'The couple must have given us an expenditure figure per month of around £1,100 for us to have deemed that they could afford to make repayments of £458 a month - in many cases, people's benefits do more than cover their living expenses.

'To end up on an IVA and not be able to afford their repayments, they must have underestimated this expenditure. We know that some debt charities will not do an IVA on a case that is completely benefits based, but we don't necessarily agree with that.'

The Consumer Credit Counselling Service (CCCS) said that it was almost always unsuitable to put somebody on benefits into an IVA. 'They would need a surplus of at least £200 a month for us to consider that option. This is not likely to be the case for someone on benefits,' said a spokesman.

'Even when the £200-plus rule is met, there are other criteria before we would deem an IVA suitable. The only circumstance in which we would recommend someone on benefits be put on an IVA is if they have assets, for example equity in their home. Sometimes bankruptcy is a preferable route and sometimes a debt management plan - a less formal but ultimately longer arrangement - is a better option.'

For people who are in less dire financial circumstances, the advantage with opting for an IVA over bankruptcy is that it gives debtors a chance to get on top of their finances. It often means the debtor can keep their home and car and will be more likely to be able to gain employment where they want. Bankrupts often run into difficulty remaining in professions such as the police, armed forces and various financial services posts.

'The IVA is an increasingly popular way forward for many people in financial difficulty because it offers them an opportunity to draw a line in the sand and restructure their finances,' said Steve Treharne, head of Personal Insolvency at KPMG. 'In the right circumstances, creditors also prefer this as a way forward, as they see a significantly greater return on their money than they would do from bankruptcy.

'However, to do a successful IVA you need to have either a large asset which can be sold to pay something towards your debts, which is rare, or, more likely, you have to be in a job providing you with a sufficient income flow to give you room to manoeuvre on a monthly basis. Anyone on benefits will not have sufficient spare income to make payments to their creditors and anyone who sets up an IVA on that basis deserves to be shot.'

Figures published by the Department of Trade and Industry show that the number of people who signed up to an IVA rose 117 per cent in the past 12 months, much higher than had been anticipated. Research from KPMG shows that the average debt for those on an IVA is £60,000 and that people as young as 19 are running up debts that are typically three times their annual income.

Sunday February 12, 2006
The Observer

Barclaycard has reduced its interest-free period on purchases by six days, in an attempt to squeeze more revenue out of customers who always pay their bills on time.

People used to paying at a certain time may now miss the deadline, resulting in a £20 penalty fine.

More card providers are now expected to follow suit, as they attempt to offset revenue losses from rate tarting and prudent card use. Card firm MBNA has already instigated a £25 annual fee on customers who regularly pay off their balance.

Nick White, head of personal finance at uSwitch.com, commented: "Undoubtedly Barclaycard will get some flack for doing this and some customers may choose to go elsewhere - but I also think they should be applauded for being upfront about it.

"One of the issues with the credit card market is that they are often perceived as being sneaky, and this sort of change could quite easily be introduced in that sort of way," he added.

According to a Barclaycard spokesman, the bank will reduce the interest-free period when it notices a customer has been paying their bill regularly for about six months.

The changes could potentially affect nine million people who hold accounts with Barclaycard.

New research has revealed that gay men and lesbians are more likely to run into debt than heterosexual people, Scotland's Sunday Herald reports.

The survey, which was conducted on behalf of radio station Gaydar, Channel 4 and media organisation OMD, questioned the spending habits of 18,000 gay people and 4,000 straight people.

The researchers claimed that "financially, gay people are more than happy to spend beyond their means" after finding the average debt for a gay person was £2,145, compared to £1,807 for a straight person.

David Muniz, commercial director of Gaydar, commented: "The credit-card figures point to aspirational spending within that group – they are willing to spend on luxury items.

"It is a slight generalisation, but it does seem that they want the finer things in life and are willing to get into debt to have them."

An oft-repeated defense of credit industry practices is that consumers act of their own volition.

According to this line of thought, credit card agreements, mortgages, and payday loans are merely contracts between rational, profit-maximizing parties with limited information. If the consumer misjudges and becomes subject to the onerous terms of the contract that she signed, c'est la vie; it’s just as plausible that the lender could have misjudged and earned only cents on the dollar in the consumer’s Chapter 7.

But legal and economic scholars working in the relatively new field of behavioral law and economics are beginning to undermine the tired logic of this industry defense. It turns out that, for reasons beyond their control, consumers act in ways that systematically depart from the rational choice model; that lenders knowingly exploit these vulnerabilities; and that the costs of the exploitation are borne not just by the individual consumer, but by family members, other consumers, and society as a whole. If all of this is so, the laissez faire approach is outmoded and regulation is justifiable.

A new paper offers an interesting example: credit industry marketing is calibrated to manipulate customers so that they will borrow beyond their needs and means. Average human economic actors suffer from various cognitive biases. Optimism bias, for example, causes people to underestimate the probability of experiencing a negative life event. Because of this, even people with full information regarding the prevalence of cancer, job loss, or divorce (all of which are associated with financial trouble and bankruptcy) will underestimate the likelihood of experiencing any of these things – and will borrow accordingly. The Harris/Albin paper contains several examples of advertisements in which lenders specifically exploit this human/market limitation to attract particularly vulnerable potential customers.

If credit consumers aren't the utility-maximizing actors the industry claims they are, what does it mean?

First, it means that the culture of blame rests on an empirically unsound assumption. If many or most people are effectively hardwired to be vulnerable, it is inappropriate to blame them for risky credit decisions. That, of course, is precisely what industry lobbyists did to convince Congress to pass the BAPCPA last spring.

Second, it raises important questions about our tolerance for the externalities of systematically irresponsible lending patterns. When borrowers extend themselves beyond their means, the cost is spread not just among the borrower and the lender, but to the borrower's family, the borrower's colleagues/customers/clients, and, in a welfare state like ours, to the universe of taxpayers. If the frequency with which borrowers default is a function of manipulative lending behavior, we may want to consider asking culpable lenders to shoulder more of the burden so that innocent bystanders have to shoulder less.

Harris and Albin propose intervening at two points in time: pre-transaction and during consumer bankruptcy proceedings. The former entails regulating modes and messages of lending advertising. The latter entails increasing the risks and costs for institutional creditors in personal bankruptcy proceedings.

For those of you who are inherently averse to increased regulation, consider the analogy to tobacco. For decades, tobacco companies, knowing full well that cigarette use (i.e. nicotine addiction) was not a rational choice, advertised their products in ways designed to exploit that biodetermined fact. When, through litigation and regulatory processes, it became clear that the industry had taken advantage of widespread vulnerabilities to the detriment of consumers and others, the government imposed regulations on cigarette advertising (e.g. no marketing to children) and enforced measures to shift the cost from taxpayers to the companies (e.g. huge settlements to offset the public health care burdens of lung cancer, emphysema, etc.). It’s time to consider a similar approach for manipulative lending behavior.

By Jason Spitalnick

A third of couples would prefer to discuss sex or previous relationships than their bank balance.

Research from city watchdog the Financial Services Authority revealed that almost three-quarters of couples found money the hardest subject to talk about. 27% of couples regularly argued when trying to discuss their finances About a third of couples lied to their partners about how much they spent on their credit cards

About the same amount were kept awake at night worrying about their money situation Relationship psychologist Christine Webber said: “Not knowing how to bring up the subject of money with a loved one without sounding accusatory, mean or overly serious, can cause incredible relationship stress.

“But there are some very simple steps couples can take to open up the lines of financial communication – it’s vital that people start talking.”

Men were prepared to do anything to avoid talking about finances, with almost a third preferring to answer questions about their partners' personal appearance rather than ones about money.

Women, on the other hand, were more likely to ask their partners for career advice More women (38%) are kept awake worrying about money than men (29%) of men.

43% of couples lie to each other about how much they spend on luxuries for themselves A third of women are dishonest to their partners about their credit card spending habits (33%) compared to 29% of men admitting not always telling the truth.

THE average cost of home energy bills is set to rise to £1,000 a year, plunging hundreds of thousands more households into “fuel poverty”.
British Gas, the nation’s largest domestic power supplier, is expected to press ahead with controversial plans to increase gas and electricity prices by up to 25 per cent in the next few weeks.

The move would be the biggest ever fuel bill price rise, hitting the elderly and poor the hardest by forcing them to spend 10 per cent or more of their income on energy.

If British Gas proceeds with its plans, other suppliers are expected to follow suit. Economists fear that the rises could damage consumer confidence and dent high street spending.

British Gas declined to comment on the scale or timing of the proposed increases but letters are expected to be sent to its 11 million customers within the next few weeks confirming details of the higher bills.

Insiders at British Gas suggested that the group was considering price rises of between 22 and 25 per cent — ten times the rate of inflation.

This would follow a 14.2 per cent increase in its gas and electricity prices last year. In 2004 it increased gas and electricity prices by 5.9 per cent and then, in a second round of price rises the same year, gas jumped by 12.4 per cent and electricity prices increased by an extra 9.4 per cent.

The proposed rises follow a 75 per cent increase in wholesale gas prices during the past year. This has a spin-off effect on electricity prices, because about 40 per cent of electricity in Britain comes from gas-fired power stations.

Energywatch, the industry watchdog, said that the average household was now spending £750 a year on gas and electricity. The 25 per cent increase would push that to £1,000.

About 1.5 million households are in “fuel poverty” — where energy bills swallow more than 10 per cent of income. This figure is expected to rise to 1.75 million this year and 2.3 million by the end of 2007 if suppliers press ahead with the increases, according to uSwitch.com, the price comparison website.

Age Concern gave warning that fragile pensioners would die if energy bills carried on soaring. A spokesman said: “If the scale of the price rises is true, customers should leave the company without further notice. Enough is enough — we would have a pretty stark message: get away from this company.”

He predicted a “stampede”, which would lead to British Gas losing one million customers if it proceeded with its plans.

Ann Robinson, a uSwitch director, described the scale of the proposed increases as “shocking” and called for Ofgem, the market regulator, to intervene.

She said: “There is insufficient justification for such excessive price rises. We will be looking to Ofgem to step in and investigate the reasons for these increases and verify that they are legitimate.”

Last month Scottish and Southern and npower introduced steep price increases in their gas and electricity prices.

FREDERICKSBURG — Alfonso Sosa, a house painter here who made about $20,000 last year, filed for bankruptcy the morning of Dec. 6, hoping to avoid the foreclosure on his family's mobile home scheduled for later that day. Judge Frank Monroe of Austin rejected the case 16 days later — with a bang.

In his ruling, Monroe said the new federal bankruptcy law is full of traps for consumers, calling some of its provisions "inane," "absurd" and incomprehensible to "any rational human being."

He stopped just short of accusing Congress of being bought and paid for, dryly noting, "Apparently, it is not the individual consumers of this country that make the donations to the members of Congress that allow them to be elected and re-elected and re-elected and re-elected."

Ordinarily, a case such as the Sosas', which primarily concerns a mobile home and land valued at $32,840, would quietly disappear into court archives.

But Monroe's order has caught fire in the world of bankruptcy and consumer law. It's being debated on law blogs and circulated across the country.

Steve Jukabowski, a bankruptcy specialist in Chicago and creator of the Bankruptcy Litigation Blog, said Monroe's unusually strong language represents "the pot boiling over" in frustration at the Bankruptcy Abuse Prevention and Consumer Protection Act, which took effect Oct. 17. "It's the kind of thing people know but that you don't write down."

The law makes it harder for individuals to qualify for Chapter 7 bankruptcy, which lets them erase much of their debt, and forces them to file for Chapter 13, which means they face longer court-ordered repayment plans. It also requires debtors to seek credit counseling before they file.

Alfonso Sosa said he didn't know about the requirement, so he and his wife, Melba, didn't seek counseling. He said he was just trying to keep his house.

Monroe's order said the law left him no choice but to disallow the Sosas' petition. He called the counseling requirement "one of the more absurd provisions of the new (bankruptcy) act."

In an interview last week, Monroe said that if Congress really wanted to help debtors, it would have required rigorous credit counseling before they can emerge from bankruptcy.

Instead, the act requires a few hours of counseling before filing. "That serves no purpose," he said.

"The people who need this type of relief aren't the type of people who have been counseling with lawyers, planning, making sure everything is right," Monroe said. "They've come to the end of their rope, and this is the only thing left to save their house, car, whatever."

The Sosas, who have three children, ages 13, 12 and 1, haven't lost their home.

Their lawyer, James Chapman of Fredericksburg, filed another petition Jan. 27. The Sosas completed credit counseling Dec. 16, and Chapman hopes to convince the court that they filed the second case "in good faith," as required by law, and should be allowed to pay off their debt through Chapter 13 of the U.S. Bankruptcy Code.

The new filing should delay the foreclosure auction of their home, which is scheduled for Tuesday on the Gillespie County Courthouse steps.

Monroe isn't the first judge to tee off on the new bankruptcy law, which was a priority of President Bush and backed heavily by the credit industry. The industry argued that the old law made it too easy for borrowers to avoid paying debts and allowed frivolous filings.

Congress passed the new law in April on largely partisan lines.

Credit card and other financial services companies had complained for years that their costs were increased by people who ran up debts knowing that they could file for bankruptcy and avoid repayment.

Supporters argued that Americans would save money on interest rates because credit card companies would no longer have to increase their fees to recoup losses from people who abuse the process.

Many bankruptcy lawyers, scholars and judges remain sore that Congress didn't listen to their warnings about the hardships the law would unfairly impose on people.

Judge Robert Mark, the chief bankruptcy judge for the Southern District of Florida, said in an October opinion that reading "several hundred pages" of the new act brought him to one "inescapable" conclusion: "The new law is not a model of clarity."

Houston-based Judge Marvin Isgur last fall called the act "particularly difficult to parse and, at worst, virtually incoherent."

Monroe's order, though, is in a rebellious class all its own.

Monroe, 61, has worked in bankruptcy his entire professional life, first at a prominent Houston bankruptcy firm and then on the bench since 1989.

"I am an under-the-radar guy," said Monroe, exhibiting some discomfort with the attention his opinion has attracted.

"If I was going to write it over with a less angry frame of mind, I'm sure I would tone down the rhetoric," he said. But, he added, "I just couldn't contain myself."

The Sosas' financial situation is hardly remarkable.

Alfonso Sosa says he had trouble making his $700-a-month mortgage payments because his painting business had slowed down. Last summer, he missed four payments in a row, prompting his lien holder, a Fredericksburg woman who sold him the trailer, to move for foreclosure.

Sosa and his wife had other debts. Their new bankruptcy filing lists $8,935 that he owes a paint supply store and three recent county court-at-law judgments against him. One is for writing a bad check.

By November, with debt piling up, Sosa says, he considered bankruptcy and thought he could roll his other major debt — the approximately $6,000 he owes on his 2000 Ford F-250 truck — into a court-approved payment plan. "So I missed a few payments on the truck," he said.

The dealership in San Antonio repossessed the truck last month after the third missed payment.

Sosa says he didn't under- stand the foreclosure warnings sent to him by the lawyer for Reyna Garcia, who sold and financed the home. "I didn't know what the word meant," he said. "I thought it was another letter complaining (about missed payments) like the other ones they had sent me."

Finally, Sosa says he didn't know that he and his wife needed to undergo credit counseling before filing for bankruptcy protection. He learned that as he filed Dec. 6.

By Dec. 20, when they appeared before Monroe, the Sosas had completed their counseling. But only Alfonso Sosa's certificate had arrived.

It hardly mattered. Because they did not request counseling before filing, Monroe wrote in his order, "Congress says they are ineligible for relief under the act."

"Can any rational human being make a cogent argument that this makes any sense at all?" he wrote.

Monroe's opinion inspired Austin lawyer Randy Howry, president of the Austin Bar Association, to send it to all 3,700 members. He praised Monroe's order as "a reminder to us all that as lawyers and judges, we are the protectors of our democracy. . . . We must not sit idly by as our constitutional rights are being shredded."

An enlightening article from across the pond:

There's a new law that forces credit card issuers to increase the minimum monthly payments borrowers must make. The good news is that borrowers will pay much less in interest over time. Nevertheless, many consumers might still be better off owing a loan shark money than a credit card company. Here are seven ruthless practices that credit card issuers engage in and loan sharks don't:

1. Loan sharks don't raise your interest rate if you're late paying a bill to another creditor. According to an ABC News report, 44 percent of credit card agreements contain a universal default penalty, which allows the issuer to increase the borrower's rate if a payment to another creditor is missed or late. Here's an example from Chase Manhattan Bank's cardholder agreement as reported in the 2004 New York Times series on credit cards: "The highest rate (28.49 percent) may be charged if the cardholder is late making a payment to any creditor; this can include phone and utility bills, car payments and the like -- even if credit card payments are made on time." So if you agree to accept a credit card with an 8 percent interest rate, and you make your payments on time for several years, your rate can suddenly jump to 28.49 percent. All you have to do is misplace your gas bill for a couple of days and be late on your payment.

2. Loan sharks don't solicit. The credit card industry sends out 5 billion solicitations a year in the United States alone, according to cardweb.com. Many of these solicitations go to people who don't even have jobs, such as my 20-year-old son, Zack, a college student. He gets at least one credit card offer a day. As far as I know, he's never been approached by a loan shark.

3. Loan sharks don't change the terms whenever they want. And if they do, they aren't bold enough to put it into print, as Bank One does on its Visa Card term sheet. Of course the print is quite fine. It reads: "We reserve the right to change the terms at any time for any reason." I assume "any reason" includes, "We'd just like to increase our profits." Or "We don't like your last name." Or "Let's raise the rates of everyone who has an odd-numbered address."

4. Loan sharks don't penalize you for paying off your debt. According to ABC News, some credit card agreements contain a no-balance fee: You can be charged a fee when your balance reaches zero.

5. Loan sharks don't charge you for not borrowing more money. Some credit card issuers actually charge a $15 monthly fee if your card remains inactive for more than six months.

6. Loan sharks don't make you sign a document that says that you can't sue them. Granted, they have their ways to encourage you to avoid this step. But Chase Manhattan Bank's cardholder agreement plainly and clearly makes you agree to give up your constitutional right to sue: "The cardholder cannot take the issuer to court or be included in a class-action suit against the company."

7. Loan sharks don't lobby the government to make it harder for you to go bankrupt. Banks and credit card issuers spent millions of dollars lobbying Congress in favor of the 2005 bankruptcy bill.

Last time I checked, loan sharking was still illegal. The banking industry's questionable practices are fully protected under the law. If ever an industry needed to be more tightly regulated, it's credit card lending. A shark is a shark, even if it wears a suit and works in a building with marble floors.

By Jim Sollisch
Jim Sollisch is a writer in Cleveland, Ohio.
Sunday, February 5, 2006;

Barclaycard customers who pay their bills in full each month may have their payment date suddenly brought forward, the bank has told the BBC.

The move could put customers at risk of incurring a £20 late payment fee if they do not examine their bills carefully each month.

This revelation comes amid continued criticism of bank profits and not long after the Office of Fair Trading (OFT) investigation into late payment charges.

However, Barclaycard denies it is trying to rake in late penalties, and says it never guarantees customers a fixed payment date each month.

Speaking to BBC Radio 4's Money Box programme, Barclaycard's Ian Barber said any change of date will be explicitly outlined on the customer's statement.

If you pay your bill in full every month you may get a few days less to pay

He said Barclaycard was "having to face up to the fact that clearly we are not making as much money out of customers that pay their bill in full as we are out of those that borrow", he said.

He added that the company was "quite open about it... if you pay your bill in full every month you may get a few days less to pay...

"That is the fact of it and we are not going to shy away from that."

Money Box listener Justin from Cambridge contacted the programme after he received his latest bill.

"When I looked at all my previous statements and my February statement, all the payments were required on the 9th of the month. The only one which is not is the December statement which requires payment by the 3 January.

Justin believes Barclaycard has a policy to maximise penalty payments, and he was concerned the company was doing it during the holiday period when banks are often shut.

But Mr Barber denied this and said: "What typically would have happened here is that he would have for a period of time, probably three, four or five months, been regularly paying his bill in full.

It is universally good advice to set up a direct debit for at least the minimum amount

"Once we recognise that someone is regularly paying their bill in full, we will shorten the time that they have got to pay a little, and that is what will have happened here."

A simple way to avoid the risk of any late payment charge was, Mr Barber said: "to set a direct debit payment up on the account.

"It is universally good advice to set up a direct debit for at least the minimum amount.

"That way you can make sure you are not going to be hit with any late payment charges, and obviously if you want to pay more on top of that direct debit it is very easy to do so."

THE scale of the debt crisis among young people “addicted to credit” emerged yesterday after figures showed the highest number of bankruptcies for more than 40 years.

Nearly 70,000 people became insolvent in England and Wales in 2005, the highest level since records began in 1960. Official figures showed that insolvencies soared by 57 per cent to 20,461 in the last quarter of the year.

In most cases people declared themselves bankrupt, but the figures also showed an even sharper rise in Individual Voluntary Arrangements (IVAs), an increasingly common alternative to bankruptcy in which houses are not automatically repossessed.

Divorce, sickness and sudden unemployment are well known to contribute to bankruptcy. But accountants gave warning that the rapid rise in insolvencies was increasingly a result of young people simply taking on more debt than they could ever afford to pay back.

“People are becoming addicted to credit,” Mark Sands, director of personal insolvency at the accountancy firm KPMG, said. He added that the average debts of those using IVAs was £60,000, of which creditors could only expect to receive about 38 per cent on average.

A study commissioned by the Government found this week that an inability to manage credit was given as the reason for financial failure in almost half of all bankruptcies.

Louise Brittain, head of personal insolvency at the chartered accountant Baker Tilly, said that credit companies were failing to make proper checks on their clients. “I see people with 20 or 30 credit cards on incomes of £15,000 a year,” she said. “This is the consequence of people being able to borrow money with no thought about how it’s ever going to be managed.”

She added that the Government’s changes to the law had played a part. The Enterprise Act, which came into effect in 2004, cut the time period in which a person is declared bankrupt from three years to one, a move she described as a “travesty”.

Analysts blame a growing awareness of the option of going bankrupt, together with the aggressive promotion of IVAs through advertising, for the surge in insolvencies.

In a further sign that a minority of people are finding their debts impossible to control, data from the Council of Mortgage Lenders yesterday showed a continued sharp rise in the number of home repossessions. These rose to 10,250 in 2005, the figures showed, up by 70 per cent from the previous year. It was the fastest rise in the figures since the end of the last recession in 1991.

Low interest rates and a healthy housing market have encouraged consumers in recent years to rack up debts of more than £1 trillion.

Ron Robinson, president of the Association of Business Recovery Professionals, said: “Personal debt is out of control in this country. Credit card companies are lending too much to people who can never afford to repay their borrowings.”

The new data from the Department of Trade and Industry showed that despite the worsening situation for consumers, there was some improvement in the situation for companies in the last few months of 2005. Company liquidations fell by 5.5 per cent on the quarter but were still up 8.5 per cent on a year earlier to 3,187.

But for 2005 as a whole, 2,257 companies in England and Wales hired administrators, an increase of 41 per cent from 2004.

Pat Boyden, of the accountants PricewaterhouseCoopers, said that the firm’s research showed that insolvency was becoming especially prevalent among young people, with men and women in their 20s and 30s showing the biggest rise in the past two years.

Analysts at the consultancy firm Capital Economics calculated that because of the rise in debt in recent years, the number of individual insolvencies would pass 100,000 this year.

Coming to an agreement to repay your debts

What is an individual voluntary arrangement? An IVA is a legally binding agreement between you and all the banks and organisations to whom you owe money. The repayments in an IVA typically last five years and are based upon a borrower’s income and expenditure. The payments are put into a trust account, which the IVA company uses to extract its fees and to pay banks and credit card companies.

How much will it cost? The schemes typically cost £5,000 but some IVA companies may charge more than twice this amount.

How long will an IVA last? An IVA plan typically lasts five years, after which the outstanding balance of a borrower’s debt is written off.

What happens if I go bankrupt? You are likely to lose your home, car and valuable possessions. You may also be the subject of an income attachment order: the trustee will take a slice of your salary for up to three years to repay your creditors and cover bankruptcy costs.

What are the consequences? Debtors have to wait up to a year before their bankruptcy debts are discharged. Non-discharged bankrupts cannot borrow more than £250. Once your bankruptcy debts have been discharged, you have the right to buy your own home and will also have a better chance of getting a personal loan or credit card. But most credit card companies will blacklist all bankrupts for six years.

Nearly 70,000 people became insolvent in 2005, the highest since records began, the Department of Trade and Industry (DTI) has said.
There were a record 20,461 insolvencies in England & Wales during the final quarter of 2005, a 57% annual rise.

Experts blame the rise in insolvencies on greater personal debt, slow growth and bankruptcy rule changes.

About two-thirds declared themselves bankrupt, the rest took out Individual Voluntary Arrangements (IVAs).

The more people incur credit, it is inevitable that this will be followed by increases in personal insolvencies

Steve Trehane, KPMG

IVAs are an alternative to bankruptcy which allows debtors to come to an agreement with their creditors.

Under IVAs debtors agree to repay a set amount each month in return for the freezing of interest charges.

Repossessions up

At the same time, the Department for Constitutional Affairs (DCA) revealed that home repossession orders also rose sharply in the final quarter of 2005.

Repossession orders have been on the increase since early 2004.

The figures show the total number of homeowners being taken to court during the final three months of 2005 by lenders pursuing mortgage debt rose 50% year on year to 31,018.

Subsequently, 18,784 mortgage repossession court orders were made, 51% of which were suspended.

The DCA's figures will add to concerns about debt and the housing market.

Credit boom

In total, 13,501 people were officially declared bankrupt during the final quarter of 2005, up 10.9% on the previous quarter and 37.6% year-on-year.

Accountancy and consultancy firm KPMG pointed the finger at the UK credit boom of recent years for rising bankruptcies.

"The levels and availability of credit have been increasing for some time and recent figures from the Bank of England show that this trend is continuing," Steve Treharne, head of personal insolvency at KPMG, said.

The number of companies going bust is also on the rise.

In the third quarter of this year 3,187 firms in England & Wales went into liquidation.

That was 8.5% more than during the same period last year.

Softer option?

Experts have argued that recent changes to bankruptcy laws have made people more willing to choose bankruptcy as a way of sorting out their finances.

Before April 2004, anyone who was declared bankrupt typically had to wait at least three years before they could be discharged.

That time limit was reduced to just one year by the Enterprise Act (2002).

Groups representing debt collectors have previously described the new bankruptcy rules as a "softer option."

But the government's Insolvency Service said that it had evidence that there was no link between the new bankruptcy laws and the rise in insolvency.

A recent independent academic survey suggested it was the availability of credit, unemployment and life changing events such as divorce or ill health which contributed to insolvency, the service said.

Pat Boyden, partner at accountancy firm PriceWaterhouseCoopers, told BBC News that many people saw bankruptcy as carrying less stigma than in the past.

"People are picking up on personal insolvency as a way out of debt...it is now easier, more accessible and there is greater awareness," Mr Boyden said.

"But bankruptcy is not a soft option, you can lose your home and struggle to get a bank account in future," he added.

Mr Boyden predicted that if current trends continued personal insolvencies could reach 100,000 in 2006.

A study of people who go bankrupt has revealed that most people regard it as an "efficient and humane" process.

Despite bankruptcy being a negative experience, respondents to the Bankruptcy Courts Survey 2005 said that the ordeal was a smooth one due to good communication between the courts and bankruptcy trustees.

The research was conducted by John Tribe, from Kingston University's Centre for Insolvency Law and Policy.

He discovered that one in two people admit that they are unable to properly manage their credit, while others blame divorce, redundancy or illness for the reason they go bankrupt.

Desmond Flynn, inspector general of the Insolvency Service, said: "Too often that debate is conducted on the basis of hard cases and personal anecdote so this research is very welcome and extremely timely.

"The report concludes that very few people see bankruptcy as an easy way out of their debts but rather that they have no real alternative."

Bankrupts were, in the main part, male and non-homeowners, who acknowledged their moral responsibility for the debt they found themselves in.


01/02/2006

Tesco and John Lewis are the latest in a line of credit card providers to put up interest rates. And the so-called rate tarts are being squeezed out, writes Teresa Hunter

There are few things more depressing than opening your January credit card statement, but two major card issuers turned the screw last week by raising the interest rates they charge.


Food for thought: Tesco Personal Finance is to raise interest rates
Tesco Personal Finance and John Lewis (voted the UK's most popular store last week) both announced increases to their plastic card rates last week of up to 1.5 percentage points, even though there has been no corresponding increase in underlying borrowing costs.

The move by the two retail giants is only the tip of the iceberg, with credit card customers being squeezed on a number of fronts, leading analysts to warn that the end is in sight for "free" credit.

Tesco is rasing the interest rate on its Platinum MasterCard from 14.8 annual percentage rate (APR) to 15.75 per cent on purchases, from 17.8 per cent to 19.09 per cent for cash withdrawals and from 15.9 per cent to 16.89 per cent on balance transfers.

At John Lewis, rates on its Partnership card will rise from 14 per cent to 15.5 per cent on purchases, from 16 per cent to 17.5 per cent on cash withdrawals and from 14 per cent to 15.5 per cent on balance transfers.

The rate rises are the latest in a growing trend of providers making it more expensive to borrow on plastic. Not only are rates going up (Smile lifted its rates by a percentage point earlier this month) but annual fees are making a comeback.

Last autumn MBNA wrote to 40,000 customers who always settle their bill each month and asked them either to pay an annual fee of up to £25 or to close their account.

Meanwhile, American Express has introduced an annual fee for low transaction accounts on its Amex Blue card.

Penalty charges have also gone through the roof. Whereas a couple of years ago customers might be charged £10 for a late payment, typically they will now be charged £20 or £25 (Tesco and Smile raised their charges this month to £20 and £25 respectively).

The same applies to penalty fees for returned or over-the-limit transactions, each of which will incur a £20 or £25 charge, with Tesco and Smile again the most recent to adjust their charges.

Defaqto, the financial analyst, warns that the good times are coming to an end. "There are still zero per cent cards out there but there are not the number they were a few years ago," says Brian Brown of Defaqto.

"The banks have decided the time has come to start making money on their plastic customers, rather than paying dearly to attract them only for them to switch elsewhere when interest begins to clock up."

Indeed, over recent weeks providers have also been quietly withdrawing and adjusting credit card offers, such as cashback cards which give customers something for nothing.

Nationwide withdrew its cashback offer this month. Existing customers can continue to benefit, but the reward has been reduced to a miserly 0.25 per cent of the value of purchases.

This follows earlier moves by others, including Halifax and Mint, although Halifax has since introduced a cashback current account.

Richard Thompson at PricewaterhouseCoopers echoes Brown's sentiments. "Rate tarts have become a common feature in the credit card market. However, their best days may now be behind them."

The move by credit card companies to raise interest fees and to remove incentives means that it is more important than ever to check the small print before deciding which card to use and to see if you can get a better deal elsewhere.

For instance, if you fail to repay your full balance each month, look for a card with a lower interest rate. There are still some decent deals available offering 0 per cent balance transfers (although there may be a fee attached)

For individuals sinking under debt, bankruptcy is often the most attractive option.
But the Government and insolvency experts are urging individuals on the brink of financial ruin not to walk blindly into bankruptcy but to consider another option: the individual voluntary arrangement (IVA).

These agreements, a product of the Insolvency Act 1986, enable the debtor to stave off bankruptcy by coming to an agreement with his creditors to pay off a percentage of his debts over a given period.

There are no hard and fast rules — an IVA is essentially a haggling process between the individual, his insolvency practitioner and creditors. Generally, though, the debtor will pay a lump sum upfront to the creditors and the insolvency practitioner, followed by a series of monthly payments.

The repayments are calculated through an analysis of the debtor’s income and expenditure. Once agreed, the repayment programme forms part of a legally binding contract, although the creditors can still force the debtor into bankruptcy if he does not meet his side of the deal. There is one other catch: an IVA can go ahead only if creditors representing more than 75 per cent of the debt agree to the deal.

But for the debtor, an IVA also offers many attractions. He avoids the stigma of bankruptcy and the severe penalties. For people whose careers could be put at risk by bankruptcy, such as lawyers and financial practitioners, the IVA is particularly attractive.

The Government has its own interest in encouraging uptake. IVAs are dealt with by commercial insolvency practitioners rather than the office of the Official Receiver at the DTI, so the greater the uptake of these, the less pressure on the Government’s resources.

While there are about 9,000 bankruptcies each quarter, only a tiny fraction of that figure enter into IVAs. The reasons, says Nick Hood, senior partner at Begbies Traynor, the insolvency experts, are many. He explains: “Some individuals go straight to the court and file for bankruptcy, without seeking the service of a professional insolvency practitioner, so they never hear about the alternatives. Another problem has been the number of rogue practitioners who take a fee to set up agreements that are totally unrealistic. They have tarnished the reputation of the IVA.”

Cost is also a deterrent, with the professional and other fees often looking hefty compared with the debt owed. And, of course, the agreements are an option only for those with sufficient assets or an income stream that will allow them to make an offer to creditors.

Insolvency experts say that the Government must boost awareness and bring down the costs if it is to succeed in increasing uptake of the IVA as an alternative to bankruptcy.

The key for those considering an IVA, Mr Hood says, is to take professional advice early on. Reputable insolvency practitioners usually do not charge for initial advice.

R3, the insolvency association, warns anyone entering into an IVA not to agree to any deal that is not realistic and achievable. “It could still fail later and you might then face bankruptcy in two or three years’ time.”

R3 publishes a guide to IVAs, Is a Voluntary Arrangement Right For Me?, which is available on the website at www.r3.org.uk/publications. The DTI’s A Guide to Bankruptcy is available at www. insolvency.gov.uk.

ELIZABETH JUDGE