Archive for January, 2010

Some of the UK’s poorest people are starting the new year in severe debt after borrowing from loan sharks to pay for Christmas, a report has said.

The Financial Inclusion Centre said 100,000 families had borrowed a total of £29m from illegal moneylenders.

The think tank said on average it would take a year to pay the money back as lenders recouped three times the value, with some interest rates up to 1,500%.

The average amount borrowed was £288, but the average repayment was £820.

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One anonymous loan shark victim, who wanted to be known as Katie, told the BBC: “If you’re absolutely desperate for money and this guy comes up to say ‘I’ll give you 500 quid’, you think ‘OK, I’ll have that’.

“It was a £500 loan to begin with and they were charging £30 a week, so in all on a £500 loan I must have ended up paying back about two or three thousand pounds.”

Katie knew it was a mistake to borrow from loan sharks, who are defined as moneylenders operating without a licence, but said she could not get money anywhere else.

Mick McAteer, director of the Financial Inclusion Centre, said: “Because of the financial crisis, the High Street banks are restricting the access to loans to those people they consider to be low risk or [have a] higher income.

“That tends to push more and more people out into the hands of loan sharks.”

The research was commissioned by housing association Circle Anglia, after it noticed loan sharks increasingly targeting its residents.

Andy Doylend, the association’s executive director of operations, said: “We hope that by turning the spotlight on loan shark activity we can help more people to seek help and get sound financial advice.

“A simple step such as borrowing from a credit union or a community finance organisation instead of a loan shark could have saved the typical low-income household £500 in debt repayments – more than enough to fund the whole of Christmas 2010 as well.”

The study found the average amount borrowed from loan sharks was £288.

Many of the lenders charged exorbitant interest rates, on average 800% but often as high as 1,500%, which meant many people paid back three times the amount they borrowed.

Lower rates

The government’s consumer minister, Kevin Brennan, said: “It is worrying that people are borrowing these sums of money from loan sharks, because they’re illegal.

“In the law they don’t have to pay it back, and my advice would be don’t go to a loan shark if you need to borrow. Approach a credit union or one of our debt advice teams.”

Chris Tapp, of charity Credit Action, urged people to contact the police if they fell victim to loan sharks, because the lending was illegal.

He said: “It often feels like the only option is to go for the person they know of locally, to go to the loan shark, but that’s not actually the case.

“In a lot of communities now around Britain there are credit unions or local finance organisations that operate from the ‘third sector’.

“They’re not-for-profit organisations that can lend money at considerably lower rates.

“It’s not actually as cheap as you’d get from a bank, but it’s much cheaper than borrowing from an illegal lender.”

Also, the government’s social fund helps people on low incomes and on benefits when they need crisis loans immediately, he said.

source: BBC.co.uk

Around 100,000 of the UK’s poorest families will be crippled with £82 million of debt during 2010 after borrowing money from loan sharks to fund Christmas, research claims today.

It is estimated people on low incomes collectively borrowed £29 million from illegal lenders ahead of the festive season.

But once interest rates, which average 825% but can be up to 1,500%, are taken into account, they will end up repaying around £82 million, according to housing association Circle Anglia.

The group says it thinks Christmas had been the worst in a generation for borrowing from illegal lenders.

In debt all year

The association says the average person borrowed nearly £300 over the festive season, but they will have to pay back more than £800, and are likely to still be in debt by Christmas this year.

It adds that money borrowed from loan sharks around Christmas time accounted for half of all loans such firms are thought to have made last year.

Andy Doylend, executive director of operations at Circle Anglia, says: “These figures are very concerning and demonstrate the scale of illegal lending across the UK.

“We hope by turning the spotlight on loan shark activity we can help more people seek help and get sound financial advice.”

source: MoneySavingExpert.com

Credit card holders are taking an average of 90 days to pay off the debt they built up over Christmas, more than a month longer than a decade ago, according to the findings by the over 50s group Saga.

Paul Green, a spokesman for Saga Group, said: “It is a shocking indictment of the nation’s economy that so many people are left struggling to cope with so much debt.”

Credit card holders took 33 days less to pay off their debts, or just 57 days in 1999, it said.

Younger people are less debt savvy with one in five under 50s saying they were still paying off debts incurred from Christmas 2008. But those over 50 are much wiser users of credit with a third of card holders planning to clear their balance immediately.

Peter Harrison, of price comparison website Moneysupermarket.com, said: “In these uncertain times, when unemployment is rising, households don’t have the disposable income to pay off their Christmas debt and are now facing the impact of repaying it.”

The reliance on credit cards to cover the costs of Christmas comes after savers saw their rates of return plummet last year. It means almost all higher rate taxpayers now miss out on a return on their savings once tax and inflation is taken into account.

Just 13 per cent of people dipped into their savings to help fund Christmas last year, compared to 31 per cent 10 years ago, Saga said.

source: Daily Telegraph (12/01/10)

It is often said that death, divorce and moving house are the three most stressful events in a person’s life.

As a licensed insolvency practitioner with some 25 years experience in England and Wales, I can confidently say that serious financial difficulty should be up there too in terms of the stress generated.

All the more so at the moment when very few of us are moving home but lots of us are starting to encounter money problems.

So just what are the signs that you may be starting to struggle financially, who should you turn to if you are, and how do situations like this tend to be resolved?

Before we get stuck in I would like to say one thing: it rarely turns out to be as bad as you think it is, and debt problems do not automatically mean you lose your home.

Are you struggling?

The main signs that you may be starting to struggle financially are if you are:

• falling behind with your mortgage
• increasingly having to live off your credit card just to make ends meet
• having to take credit from parties that you would not normally take credit from
• borrowing money from family or friends to pay pressing creditors
• borrowing from Peter to pay Paul.

Clearly, you should try to cut back on any unnecessary spending so that you can divert some income towards paying off your debts, or at the very least try to stop them getting bigger.

But if that is too difficult to achieve, or is unlikely to have much effect anyway, then you should seek professional advice from an insolvency practitioner.

What I always try to drive home is that the sooner you do this, the more options you will have for resolving the situation.

Burying your head in the sand only makes the situation worse.

What is an insolvency practitioner?

Technically speaking, an insolvency practitioner is a professionally qualified person who is licensed to advise and act in relation to an insolvent individual, partnership or company.

In plain English, and as far as you are concerned, it is someone who knows how to resolve the sometimes grim financial situations people find themselves in as quickly and as painlessly as possible.

Insolvency practitioners are not only licensed but are also required to have professional indemnity insurance, as well as specific insurance on a case-by-case basis.

In addition, they will be regulated by one of a number of bodies, for example the Institute of Chartered Accountants.

And believe it or not, we are human, too. A lot of people expect us to be stern, Dickensian characters dressed in dark suits and are pleasantly surprised when we speak the same language as they do and are actually warm and sympathetic.

The meeting

However dire you think your own situation is, an experienced insolvency practitioner will have seen it all many times before and you should not feel embarrassed or uncomfortable about telling them absolutely everything.

Indeed, without full disclosure the insolvency practitioner will not be able to offer you the best advice.

The insolvency practitioner will start by asking you a number of questions relating to your income and expenditure, assets and liabilities in order to get a clear picture of your particular circumstances.

You should therefore take along with you a list of all your assets and liabilities, as well as details of your, and your partner’s, income and expenditure.

Having gained an insight into your situation, the insolvency practitioner will explain the different options available to you, the benefits and pitfalls of each, and will answer the many questions you will undoubtedly have.

As a result, you will become much better informed and be able to make a rational decision about how you wish to proceed.

The insolvency practitioner will also fully explain any costs associated with each option and what options there are if you have no funds or only limited funds available.

For example, some insolvency practitioners will agree to draw fees over time rather than be paid up-front.

But if you have no income or assets, it is more likely that bankruptcy will be the way forward.

Given that most insolvency practitioners offer an initial consultation free of charge and without obligation, there really is nothing to lose.

The IVA

Subject to your own personal circumstances, an insolvency practitioner may propose an Individual Voluntary Arrangement (IVA).

An IVA is a legally binding arrangement with your creditors that an insolvency practitioner will help to put together in order to give you the necessary breathing space to get your affairs back in order.

The creditors will be given an opportunity to examine what is being proposed and if they agree to it, they will effectively take a back seat while you take the steps necessary to implement the arrangement.

For example, the arrangement might be for you to pay a proportion of your future income into a fund over a period of time so that at the end of the agreed duration of the agreement creditors are paid more than they would have been had you been declared bankrupt at the outset.

Alternatively, the arrangement might be for a third party to introduce funds for the benefit of creditors so that they agree to accept a lower sum now than that which is due, but in full and final settlement.

In many circumstances, you may be able to retain the ownership of your private residence.

After the initial consultation, setting up an IVA may well cost about £1,500, and probably more if your affairs are complex.

Bankruptcy

If an IVA is not appropriate for you, then it may be that bankruptcy is the way forward, which will involve going to your local county court to start the process.

A bankruptcy usually lasts for 12 months but can be less in many circumstances, and often you can continue to work during it.

After the conclusion of the bankruptcy, you are “released” and can carry on rebuilding your life.

With bankruptcy, a professional person, known as a trustee, is appointed by the court to realise any assets you may have and to deal with your creditors.

The main asset most people possess is their house.

However, if a spouse and/or children are involved, a trustee cannot dispose of the house for at least 12 months, and often may have no interest in it at all.

It is a common misconception that going bankrupt means you automatically lose your house.

This is not the case and the outcome will depend on the value of the house, the outstanding mortgage, the level of any other interest in the property and the circumstances of the case generally.

It is also a common misconception that bankruptcy brings it with a social stigma. Thirty years ago, maybe. Today, not at all.

Source: bbc.co.uk

Up to one million households have borrowed money on a credit card to pay their mortgage or rent over the past year, a charity’s study suggests.

Housing charity Shelter said this figure represented 6% of UK homes.

Shelter said people in lower social groups had been most likely to need to use their credit cards, but that the middle classes had also been affected.

The charity said the figure was a “shocking discovery”. Its survey questioned 2,022 people.

Seek advice

Shelter said many people who had resorted to using their credit cards were now at risk of becoming homeless, as in some cases defaulting on their credit card repayments might lead to their homes being repossessed.

Shelter said it urged people who were struggling to keep up with their housing costs to urgently seek expert advice.

“If people are already struggling to the extent that they fear losing their home, increasing credit card debt cannot be the answer,” said Kay Boycott, Shelter’s director of policy and campaigns.

Its survey suggested that for lower social groups, the number of people resorting to using their credit cards over the past 12 months rose to 8%, while the figure for middle class people totalled 4%.

Last year, Citizens Advice reported that some lenders were increasingly going to court to obtain a charging order, which secures a previously unsecured debt on the borrower’s property.

While cases of actual repossessions following this were rare, such a move would make it possible for a lender to ask a court to order the sale of a property to recover a debt.

Citizens Advice found that since 2000 there had been a 722% rise in the number of charging order applications by unsecured creditors.

The charity also found that 74% of the 132,000 applications in 2007 resulted in charging orders being made.

source: BBC.co.uk

A form of secured borrowing known as logbook loans, or bills of sale, may be outlawed under government proposals.

The department for business innovation and skills (BIS) is consulting on plans to ban what it calls the “archaic” and expensive method of borrowing.

More than 1,000 people have complained to the Office of Fair Trading about these loans in the past four years.

The loans are usually secured against the value of cars and allow the lender to repossess without a court order.

“They were developed in the days of Charles Dickens and don’t meet 21st century consumer standards,” said consumer minister Kevin Brennan.

David Harker, chief executive of Citizens Advice said it was high time they were banned.

“There is no consumer protection and people can end up in serious debt and risk losing their car and even their home when they borrow money this way.

“CAB advisers have seen cases where borrowers have been subject to unfair or misleading sales practices.

“Bureaux have seen cases where lenders pursue shortfalls after sale aggressively, including putting people’s homes at risk through the use of charging orders – a second chance at securing a previously secured debt,” he explained.

The concept of the logbook loans stems from Victorian legislation – the Bills of Sale Act in 1878 and its amendment in 1882.

The item on which the loan is secured can be seized and sold if the borrower defaults, and the borrower can still be pursued if there is any shortfall when the item is sold.

Nearly 40,000 such loans were made in the year to March 2009 for sums amounting to £30m.

“Complaints relate to the lack of protections available to people if they fall into arrears, unfair collection practices, the complex and confusing nature of the language used in the agreements and the excessively high cost of the loans,” said a government spokesman.

Source: BBC

Personal insolvency numbers in the North West could reach the 18,000 mark in 2010, according to newly-merged accountancy firm RSM Tenon.

It said that personal insolvency figures in the region reached 15,000 in 2009, an average of 41 people per day. Personal bankruptcy figures were up by 12 per cent and individual voluntary arrangements (IVAs) were up 16 per cent. Around 1,400 people took advantage of the new Debt Relief orders which were introduced in April last year as a cheaper way of dealing with debts than bankruptcy.

“After a slow start when they were launched on 6 April 2009, DROs have grown in popularity as the benefits of a lesser associated stigma and no Court hearing are recognised,” said RSM Tenon’s insolvency specialist, Gill Wrigley.

“Nationally, we expect the number of DROs to continue to grow in 2010 as the ease and speed make this the preferred route for those people who fit the criteria. In fact, if the recent trend for DROs to increase to more than 400 per week continues, we could see more than 20,000 DROs in 2010.

source Michael Flahy (Crains Manchester)

The average UK household is £57,888 in debt, according to a new report by Credit Action.

The figure, which includes the amount owed on mortgages, is one of several shocking statistics compiled by the money advice charity.

The total debt of the entire UK stands at £1,459bn, a 0.7% increase over the last twelve-months. This means the average amount owed by each adult in the country is £30,226 (including mortgages) – 113% of average national earnings.

Average household debt excluding mortgages is £9,016, this figure rises to £18,784 for households who have some form of unsecured loan.

Debt problems are so severe that the Citizens’ Advice Bureau is dealing with 9,300 new cases a day from individuals seeking help with 1000 people attempting to make debt consolidation arrangements each day.

The report also shows that 2,093 people were made redundant every day in a three month period up to the end of October 2009, and a property is repossessed every 11.2 minutes.

Average consumer borrowing via credit cards, motor and retail finance deals, overdrafts and unsecured personal loans has risen to £4,708 per average UK adult at the end of November 2009.

Christmas 2009 has already hit people hard, with almost 4m people going into debt to pay for the recent festivities. 6.5m people fear that they won’t be able to pay their bills at the end of January due to Christmas spending.

source:  http://www.claimsfinancial.co.uk/consumer-news/

Christmas has had a harsh impact on those struggling to make ends meet, as one in 10 people has gone into debt over the festive period.

A survey found that 6% of respondents are still paying back loans they took out last year to pay for presents. People borrowed money from financial services firms, relatives and friends and about 8% of people surveyed by insolvency trade body R3 said they had used debt to pay for presents and other Christmas spending.

After paying for Christmas, 13% of people said they did not think they would have enough money to cover their bills.

A third of people said they felt guilty if they did not live up to the expectations of friends and relatives at Christmas, despite the fact they were overspending.

Peter Sargent, president of R3, said: “Christmas can be a treacherous time for people who are struggling already to make ends meet.

“While many people have been careful in their spending throughout the year, worrying numbers are set to break these good habits resulting in a financial nightmare for the New Year.”

R3 predicts that a high proportion of those declared insolvent in 2010 will struggle to keep up with their debts in the first few months of next year. The group has estimated that a record 154,355 people will be declared insolvent next year.

Mr Sargent said: “Personal insolvencies hit record levels in 2009 and we usually see a rise in the New Year due to festive over-spending.”

Copyright © Press Association 2009