District Judge Stephen Gerlis
The figures are staggering – 10,000 people expected to go insolvent every month; £1.3 billion worth of personal debt; a 65 per cent rise in mortgage repossessions. In The Times on January 3, Gabriel Rozenberg suggested that the cause is increased expenses not being matched by the growth in real incomes, coupled with the ready availability of credit.
We see the results of this practically every day in the county court. For mortgages, every increase in interest rates brings with it a higher monthly instalment and an increased chance that the "roof over the head" is at risk. The mortgage companies are in an advantageous position because they have security for the debt – the property itself. If the mortgage and arrears are not going to be paid off within a reasonable period they can apply to the court to take the property and sell it off.
Even if a debt is not secured against a property, steps can be taken by judgment creditors to grab any available assets by way of repayment. One of the most common ways is by calling in the bailiffs to seize belongings, other than essential ones, to go towards the debt. The plasma TV, PlayStation and laptop are all at risk, as well as any vehicle, provided it is not already subject to a finance arrangement. Even if it is, the finance company can arrange to repossess it.
Once a creditor has a judgment he can seek to enforce that against any property owned by the debtor, even if it is jointly owned. This is by means of a Charging Order which puts a notice on the registered details of the property confirming that the creditor has a charge against it. The property cannot then be sold or mortgaged without first dealing with that creditor’s charge. The creditor can take the matter further by using the benefit of the charge to seek an order for sale of the property in order to get hold of the money due.
Employed? The creditor can seek to attach part of the wages every week or month to go towards the debt and the employer is obliged to deduct it from the pay packet until the debt is cleared.
Money in the bank? The creditor can seek an order than the bank freeze the account in order to pay out monies to go towards the debt. The court also has power, at the request of the creditor, to question the debtor as to his or her financial position so that a decision can be made as to how the debt can be paid off.
It all looks a bit one-way. Can the debtor do anything in order to protect his or her position? First, don’t do nothing. Many lenders are willing to be sympathetic to financial difficulties provided the borrower is up front with his problems and makes sensible suggestions as to how to resolve them. Waiting for the lender to make the first move is not the best tactic. A visit to the Money Advice Unit at the local Citizens Advice Bureau may well result in a strategic plan to deal with all the debts and suggest realistic proposals to the creditors.
If the debts (other than mortgage or rent debts) do not exceed £5,000, the debtor can consider applying to the court to consider an Administration Order. This consolidates the debts and arranges a regular single payment per month among all the creditors. The court can even consider discounting the debts. Failing that, and where the debts are fairly significant, more and more debtors are entering into an Insolvency Voluntary Arrangement (IVA) by which the creditors agree to regular, often discounted payments being made. About 45,000 IVA’s were entered into in 2006, twice that of the previous year.
Finally, there is bankruptcy. This still has a stigma for many people but, as can be seen from the figures above, also has increasing attraction. The reduction of the period of bankruptcy from three years to one is no doubt a factor in this, as is the possibility of wiping out most of the debts.
Perhaps the best advice is that given by Mervyn King, the Governor of the Bank of England. He suggested that careful consideration of one’s financial position should be given before taking on further borrowing, particularly if that borrowing consists of unsecured loans and credit cards. "Live now, pay later" does of course mean that at some point a day of reckoning will arrive.
Source: Times Online
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