More volunteer for bankruptcy as going bust loses its stigma

Times of London ^ | 02/16/08 | Grainne Gilmore

[TigerLikesRooster]

February 16, 2008

More volunteer for bankruptcy as going bust loses its stigma

Grainne Gilmore, Economics Correspondent

There is increasing evidence that going bankrupt is losing its stigma as consumers struggle with mounting debts.

Three quarters of all people who petitioned for bankruptcy last year did so voluntarily, new figures show. While overall bankruptcy petitions fell slightly last year, figures from the Ministry of Justice released yesterday showed more people initiating proceedings. Some 53,114 people petitioned in court to become bankrupt in 2007, up from 52,717 in 2006.

Vince Cable, Liberal Democrat Treasury spokesman, said: “These figures are clear evidence that more and more people are finding it impossible to keep up with repayments on their growing debts. For many people it seems that voluntarily filing for bankruptcy is the only way to shed debts they simply cannot pay. As the credit crunch further impacts on the cost of borrowing, we need to wake up to the very real possibility of mass bankruptcy and repossession across the country.”

The new figures come just two weeks after Insolvency Service data showed that the number of people declared insolvent fell for the first time in nine years during 2007. While the number of bankruptcies rose, the number of people entering into an individual voluntary arrangement (IVA) fell sharply.

This fall was partly because of a dispute that broke out between banks and IVA companies. Banks refused to accept many IVA applications saying that IVA firms were offering payments that were too small and taking generous fees. But this dispute was resolved last month, leaving the door open for more people to use this scheme to write off debts.

Experts said that they expect insolvency figures to climb next year.

Mike Gerrard, head of personal insolvency at Grant Thornton, the accountancy firm, said: “We believe the number of personal insolvencies is likely to increase in 2008 because of problems in the economy and the overhang of personal debt. Up until now, the equity in people's homes has been their ‘get out of jail free' card, but as the housing market stalls, they will find it harder to get money this way.”

The number of companies seeking liquidation also fell last year. The number of winding-up petitions fell to 11,791, down from 12,103 in 2006.

But experts gave warning that these figures could increase next year.

Paul Stanley, a managing partner at Begbies Traynor, the insolvency practitioner, said: “Last year was a quiet year as most companies were able to refinance using cheap money. But after the credit crunch, things changed. Banks moved from sales mode to control mode, and a lot of companies have been unable to refinance in recent months. I would expect an increase in company winding-up figures this year.”

Mr Gerrard warned that debtors were wrong to think bankruptcy was the easy way out after new rules introduced in 2004 allowing bankruptcies to be discharged after one year, rather than the previous three-year period.

He said: “The perception is that it is now easier to go bankrupt because it will be discharged after one year, but this shorter time frame doesn't change the fact that your assets, for example your house, are still up for grabs if you declare yourself bankrupt. Those who go bankrupt will also have to deal with their credit rating being shot to pieces for years to come.”

A bankruptcy is included on all credit files for six years.

[TigerLikesRooster]

Well, the bankcrupcy will go mainstream soon. A majority of people could go for it, just as they dived en masse into overvalued asset market.

[TigerLikesRooster]

Ping!

[Mr Ramsbotham]

Bring back the debtors’ prison.

[CitizenUSA]

Immorality lies at the heart of most of our world’s problems. Moral people do not use government to strong arm their fellow citizens for cash. Nor do they envy those who succeed through hard work and sacrifice. Moral people pay their debts, keep their word, and love God and country.

Liberalism feeds on immorality. It apologizes for it, encourages it, and supports it. That, my FRiends, is the heart of the matter.

[TCats]

"There is increasing evidence that going bankrupt is losing its stigma as consumers struggle with mounting debts."

Hmmmm.... I think I disagree with the basic premise of this article. I would word it as follows:

There is increasing evidence that going bankrupt is the only way out of the impossible financial situation many consumers find themselves in. The culture of consumption by debt, short term satisfaction and feel good now mentality foisted on consumers by every Public and Private institution has had the predictable result that many, many of the less wary and perceptive members of Society find themselves unable to deal with the eventualities they were told to ignore as these Institutions pressed them for their patronage. In the process they were enslaved.

I could write a novel but this is the logical result of a culture of consumption that has as it's mantra the exaltation of materialism as a viable lifestyle and reason for being.

[FR Class of 1998]

Honestly, a lenders’ prison would be more appropriate. Or a politicians’ prison.

[TCats]

Bingo, see my post right before yours.

[FR Class of 1998]

Seriously. If anyone deserves to go to prison, it’s the folks who write financial contracts in a font size and in language deliberately intended to prevent the other party from reading and understanding it, then demand that the force of law be used to enforce such contracts. Ever see an honest business do such a thing?

[durasell]

Ever see an honest business do such a thing?

---

Yes, all the time. Business is business, you seek to gain advantage in any legal way possible.

[The Wall]

Please tell me you’re joking - debtor’s prison? I truly feel we live in a police state as it is. We definitely don’t need more prisons - how about better laws. As far as bankruptcy in general goes, and I may be the only one here that feels this way, but I’d love to see it go mainstream. I pay my bills, and always have. I’ve been out of work for long periods of time as well, and not once did I apply for welfare, food stamps, etc. Not that I couldn’t use it, I just have a little more pride than that, and I absolutely don’t feel it’s the government’s job to take care of my ass. But I will say this, I’ve lived in the New Orleans area all my life, and have been struggling harder than ever since Katrina. The work I’ve done since college has dried up, and I now work two jobs and take home two-thirds less pay. I am now seriously considering bankruptcy myself. I lost everything I owned and had 5 feet of water in my home. I’ve had nothing but trouble with Standard Mortgage since the storm. I was originally told not to worry, missed payments and lost time will just be added on to the end of my mortgage - no problems. As soon as they were able to work with me (a year and a half after the storm) I was told that I had to pay everthing that was past due back within the next year, or my house was going to auction, and they put me into foreclosure. A week before the auction they really worked out a deal for me. Now my montly payment has tripled, and I can’t afford it. All this for a house with no kitchen, no A/C, nothing is finished, etc. Yeah, sounds like a high crime...can’t believe they haven’t locked my ass up yet.

[RSmithOpt]

Why is it that so many do not even care that they take the time to sit down and down some honest math?

I am sure that there are many FReepers that would like a lot more polish in their lives, but hey, how can anyone trade personal integrity for a wide screen?

I read yesterday that on that the average sq. footage for the average American for the Average American home has grown from 900 sq ft to over 24oo sq. ft.

When I started out (renting), my home was 923 sq st, now 1517 sq. ft.

Both still take a good bit of time to maintain.

People are basically envious.

Now, if I were to be able to afford it, I could stand to live here and let others build to catch up:

[TCats]

Nope. And add to it the Credit Card Co's and the Media who keep jamming down an unwary Societies mouth the concept of buy now, pay later and provide such an easy avenue for millions of easily influenced people to get themselves and their families in way over their heads.

The Government is in the pocket of these institutions and our Pols actively promote and practice this conduct. It really sucks.

[durasell]

You would regulate television ads offering credit?

[FR Class of 1998]

I believe it is quite illegal to deliberately conceal the terms of a contract and then to insist on its enforcement. It is called fraud, and if the financial institutions didn't have our government bought and paid for, it would be prosecuted appropriately.

Sorry, but honest businesses don't write contracts in 5-6 point font and in language that requires a J.D. to interpret. I've both written and signed plenty of contracts in my time, and it's simple common sense that if you are doing honest business you have no need to conceal the terms in such a fashion.

Have you really never gotten one of these?

0% APR for new customers!*

Additional terms and exclusions apply. Rate adjusts to 24.75% after 3 minutes and 22 seconds, applicable retroactively. Customers born on a Wednesday or Thursday may be subject to an additional 5% penalty per minute.

I call that fraud, and I think any person with common sense would also perceive it that way.

[durasell]

The terms aren’t concealed, they are just difficult to read. Hence, it’s legal. Is it fair? No, but business isn’t about being fair. Third Grade is about being fair, business is about making money. If you can make money by developing a better product, then good for you. If you can make money by selling money to morons at unreasonable rates, well, it all spends.

Business 101: In any business deal assume the other party doesn’t need any help in looking after their interests.

[joesbucks]

Immorality lies at the heart of most of our world’s problems. Moral people do not use government to strong arm their fellow citizens for cash. Nor do they envy those who succeed through hard work and sacrifice. Moral people pay their debts, keep their word, and love God and country.

While this is an article from across the pond, there are a heck of a lot of people of deep faith on this side looking to the government to get them out of trouble for doing stupid with money.

Once trailer trash, always trailer trash.

But then again, some of our best corporate examples and leaders do stupid too and use the government and courts to bail them out.

I love it when businesses get on their soap boxes about consumers who need to be more savvy with their purchases and finances and then go running to the courts for protection when their expert buyers and financial folks do stupid claiming they were duped.

[TCats]

Did I say that?

No, I would, however, place greater responsibility on lenders to police themselves in the granting of credit. A simple example I saw on TV demonstrates this situation:

I single, employed mother is induced to buy a $750,000 home in California with $10,000 down and a no documentation two year teaser loan at 1% that moves to market rate thereafter. Her loan application is approved and she moves in. Her income at the time of purchase? $37,000/year - BARELY ENOUGH TO PAY THE PROPERTY TAXES AND INTEREST ON THIS PURCHASE. Is she stupid? Yes, to the point of fraud.

The fees are collected by the Mortgage initiator who then ‘Sells’ the loan to Citigroup who then packages it and sells it along with other similar loans as a portfolio to other individuals and institutions.

Who should go to jail when the loan is bad? Who should bear the consequences of this fraudulent transaction?

I could give a hundred of other examples of Credit Cards solicited and sent to people, etc.

There is a proper role for some form of regulation in these matters. Simply saying “Buyer Beware” doesn’t cut it IMO.

[durasell]

People don’t go to jail for bad loans. The people who suffer the financial consequences are the corporate and other entities who bought the bad paper. They got stuck holding the bag — and a very big bag it is.

Lenders will police themselves only in a way that it’s profitable.

[FR Class of 1998]

It’s only legal because the financial institutions have bought laws favorable to their business.

It’s not the legality which is the issue, it’s a matter of right and wrong. The attitude of “it’s legal, right and wrong don’t matter” is pure fuel for those who would regulate by fiat every aspect of our economy.

Ultimately, the laws and economic system have to be fair or we are nothing but a bunch of pirates conducting raids against each other. And if that is to be allowed, the very basis of the legitimacy of the government must come into question - a government that allows its people to be preyed upon has failed in its most fundamental role.

The rule of law is fundamental to the existence of a free people, and for that rule of law to be effective it must be grounded in a moral code. Law without a moral basis is nothing but the instrument of tyranny, which we can see at work here as more and more of our fellow citizens live in effective slavery to this system.

[TCats]

I understand where you are coming from - A complete Free market. I just do not think the ‘Free Market’ should be a ‘Free For All Market’.

There is a need for the development and enforcement of some basic ground rules since everyone is not as adept or alert as you or I are. In a way these people need to be protected from their instinct to play three card monty with their life - And don’t give me what I know you are thinking, that it is up to everyone to police themselves, be completely responsible for their actions and be prepared to accept whatever consequences ensue such that anything they get snared into is their own fault.

The reality is that many are not equipped to deal with much of this stuff and, short of eliminating them from Society, they need some help in leveling the playing field.