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Too Poor to go Bankrupt

Coin Dropping Into Piggy BankYou may be surprised to learn that UK insolvency legislation is ranked 7th best in the world.  It is even higher than the bankruptcy provisions used by our neighbours across the water in the USA.  Included in the UK legislation are personal insolvency provisions which are supposedly designed to allow an individual to address their debt problems and effectively start afresh.

The recent insolvency statistics show bankruptcies are down in quarter 2 (as compared to Q1) to 5,452 bankruptcy orders. This represents 5 people in every 10,000 of the UK population are going bankrupt.  However, a recent report has suggested approximately 315,000 people are trapped in a wilderness of debt enforcement, demands and, quite frankly, a miserable existence because they cannot afford the £525 it costs to make themselves bankrupt.  I have had the distressing experience of meeting some of those people trapped in this situation where the cost might as well have a few noughts after it!  People already in financial difficulty simply do not have the ability to raise that amount.


There are other means of addressing a debt problem. Thousands of people enter into debt management plans (“DMP”) which is basically a scheme to repay your debt over a period of time.  They are sometimes referred to as a “debt for life” because many could (in theory) continue for decades.  The worst I saw was a 64 year old who we worked out would be 92 by the time he completed the plan!  Unfortunately, as DMPs are not regulated actual figures showing how many take this option are not available.


If your debt is less than £20,000 and you meet certain criteria, an individual can enter into a Debt Relief Order. However, this merely “freezes” your debt for a period to give you the chance to get back on your feet so the sword of Damocles, being your debt, continues to loom.  However, almost 6 out of every 10,000 of the population are entering a relief order which is one of the few procedures to experience a rise in numbers.

Another process experiencing a rise in numbers is the individual voluntary arrangement (“IVA”). In fact almost 12 out of every 10,000 of the population seek this form of debt relief or compromise.  Those who choose an IVA can afford to make themselves bankrupt but there are usually compelling reasons why they seek a financial compromise with their creditors.  Once approved, it makes life for that debtor a little easier to bear, which is more than can be said for the 315,000 poor souls that cannot afford legislated protection.


Gary Pettit