My view on bankruptcy

I have to be honest and say that my view on bankruptcy is very mixed. Having helped so many people, having experienced bankruptcy myself and seeing what goes on in the credit and debt industry leads to differing views and opinions. I could write an entire book on what I have seen and heard but I will share some of my thoughts here.

The bankruptcy process

Is the bankruptcy process fair? It is easy to get disgruntled as a bankrupt but let's think about it. You have debt that you cannot pay and you are allowed to wipe it within a year. Given all the pros and cons about bankruptcy, whether it is fair or not is down to personal opinion. When I see some cases I do think that it is fair. For other cases I most certainly do not.

I do have some gripes about bankruptcy though. I will describe some of them here.

What I do not think is fair is the way that some people can be treated during the bankruptcy. An instance of this can occur when a trustee or Official Receiver exercises some of their powers. Although the trustee or Official Receiver will only be doing their job it can leave the bankrupt and family in a state of uncertainty and vulnerable to pressure and action that they may not be able to defend. Worst still is when a trustee is acting outside of the rules and putting pressure on the bankrupt to comply. This is completely immoral in my eyes. Although as a bankrupt you have a right to protect yourself, you are unlikely to know if the trustee is acting outside of the rules and what your rights actually are.

It is going to be extremely controversial of me to say this but I think that the way that honest bankrupts are charged high interest for credit after bankruptcy is sometimes wrong. Quite often a bankrupt will pose a lower credit risk than someone with debt. The reason being that they have no debt. I particularly refer to mortgages in this instance.

Some organisations use bankruptcy disproportionately. By this I mean bankrupting an individual for a very small amount of debt. For example, it has been known for a tax debt of a couple of thousand to turn into a debt of £40,000 because a bankruptcy order was made. What a nightmare!

In line with this is the fact that a creditor only has to be owed a sum of £750 or more to present a petition against you. This is known as the bankruptcy level and it has been at £750 for some time. I believe that this sum is far too small, particularly for someone in business. In the past it has given rise to organisations using bankruptcy as a threat to obtain payment.

Who is at fault?

There is never a straight forward answer to that question. Only in the minority of cases can blame be put on a single person. In the majority cases there are groups of people and also organisations to blame for an individual’s bankruptcy.

Let’s take the credit crunch as an example. Who is to blame for the masses of debt that we accrued, which has ended in bankruptcy for many thousands of people? Well, there are a large number of lenders who failed to assess whether applicants could realistically afford the credit that they were applying for. There is the government who strategically drove the credit economy, failed to regulate the lenders well enough and for years failed to provide financial education. There is the individual who applied for the credit and perhaps failed to seek advice soon enough. Maybe the individual was managing their debts successfully until they were made redundant. Then of course there is the question of who is to blame for inadequate income protection? Perhaps the income protection did not pay out!

The debate surrounding who is to blame is huge and will go on for many years. I haven’t even scratched the surface above but the point that I am trying to make is that we all have a part to play. A very small minority of people will lay completely blameless.

The advice industry

I am going to try and be diplomatic in explaining my views on the debt and bankruptcy advice industry. I would first like to say that there are good advisers and bad advisers, regardless of price and qualifications. Don't assume because you are paying £1000 for advice that you will be speaking to an expert. Likewise do not assume that a charity is best because they are free. That is simply not how it works.

Over the last few years a large number of organisations and advisers have entered the industry or expanded their operations. Some take their position of responsibility to the debtor seriously whilst others are in it for a quick buck.

To be frank, some of the organisations out there disgust me and give the reputable ones a bad name. They are not exactly in short supply either. It is amazing how many people have suddenly become a debt or bankruptcy adviser overnight!

It will pay dividends for you to be careful about who you use, there are too many organisations set up with the wrong objectives. Don't fall for statements such as "we have the best experts in the country" or "we have a million years of experience" when it is not true. Instead, start asking questions such as:

• Who is your debt adviser?
• What qualifications do they have?
• How many years experience have they had?
• How often do they attend training events to keep abreast of changes in the law?
• Are they capable of advising on all debt solutions and do they offer all debt solutions? If not you may be in danger of receiving biased advice.
• Are they free? Of course they are, they all are. Yeah right! Think about it for a moment. If you are not funding them your creditors are. Hardly any debt advice organisations are funded by the Government. Even if they do receive grants it does not mean that they are any good. Likewise, it does not mean that they are bad.

Do not be afraid to ask these questions and ask for the answers in writing. Above all else do not be blagged by anyone. It is too easy to be persuaded by promises of free help.

It is amazing how many organisations out there pitch themselves as debt advice organisations when all they do is set themselves up to qualify individuals for an IVA or a debt management plan and earn a hefty commission for it. The problem that arises here is that the advice you receive could well be biased to the solution that particular company arranges. It may not be suitable for you which I think is particularly immoral because it can affect your life so adversely.

Ease of bankruptcy

It is becoming much easier for someone to declare them self bankrupt. There is also much less stigma attached to it. I think that this is a good thing and a bad thing.

It is good because bankruptcy is supposed to be a fresh start and it is stressful enough without the stigma or worry of a long bankruptcy that once existed. Consideration also has to be given to the fact that bankruptcy is seldom solely the fault of the bankrupt.

On the flip side, this distracts individuals from the seriousness of bankruptcy. It is easy to say that bankruptcy is an easy way out of debt but that is just not simply the case. You will often find it is people or an organisation without a clear or in depth understanding of bankruptcy that claim it is easy. Of course there are also the people who just do not care. I can assure you that bankruptcy is not easy, it should be treated with the seriousness it commands. Remember, it is a legal process. It is important to realise that bankruptcy can work for you, but in my opinion you have to make it work for yourself. That applies to all debt solutions.

To share your view on bankruptcy please send it to me through the submission page. It will be published in the views section of the website.

For more information about bankruptcy please go to the What is bankruptcy? page.