The haves and the have debts

First Christmas, then New Year, then record debts. It has become an annual litany as people pay for the most expensive time of year on tick. Or some people do. Because Britain is indeed two nations. The haves and the have debts. Roughly speaking – and the figures are not precise – the £212 billion of consumer credit (apart from mortgages) is owed by half the population. The other half has no debt at all. In other words the half of the country with savings is providing the money which the banks lend to the other half with debts. And while those with savings are lucky to get 5% a year on their money, those in debt can easily find the banks charge them 15% a year. It’s quite a margin. And a growing chunk of it goes to writing off the debts of people who become insolvent – or go bust as we like to say in the media.

Last year saw record levels of individuals going bust. There are now two ways to do that. The traditional bankruptcy means you can lose all your assets – including your home – but for those without property it can be the best option. After a year your bankruptcy can be discharged, although your bad credit rating can make borrowing just about impossible for six years. The more recent alternative is called an ‘individual voluntary arrangement’ or IVA. The debtor does a deal with the banks and other creditors to pay back what they can afford – say 30% of their debt. If they keep to that deal then the rest is written off. The home you live in and other property is protected. But of course your credit rating is reduced to practically nothing making borrowing or even getting a current account very difficult.

Figures for the first three quarters of 2006 indicate that the number of people going bust grew by 65% last year. That would mean well over 100,000 people went bust in 2006. The big growth area was in IVAs which now account for almost half the current personal insolvencies. Until recently the banks liked these arrangements. Better to get a third of the debt repaid over a short time under court supervision than struggle to get more of it repaid over a lifetime. But the rapid growth in IVAs and the massive write-offs of debt means the banks are at last feeling the pinch of lending policies which have made credit too easy. And if the banks start taking a bit more care over who they lend to and how much they lend, that could begin to bring down the debt mountain.

Go back to Saga Web

Go back to Saga Magazine

Go back to archive front page

Go back to Paul Lewis front page