New Fact File / Debt & Bankruptcy Guide

We have updated the Debt and Bankruptcy Guide accessible on line this month (March 2008).  Should anyone wish to receive a hard copy of that document it is sent to all subscribers of our organisation.  You may subscribe online or by telephoning us on 01423 799141/2.

MBE

As some of you may already be aware, Gill has been awarded an MBE in the Queens New Years Honours list.  Although still in shock, Gill is both delighted and proud!  We would also like to take this opportunity to thank everyone who has contacted us to offer their congratulations to Gill - your comments are greatly appreciated.

Property Repossessions

There has been an increase in the number of property repossessions as a result of missed mortgage payments.  Whilst the balance of credit card liabilities has in fact reduced recently, some individuals are still struggling to service their mortgage.  There are likely to be a number of reasons for this situation - the increase in interest rates, a slow down in the housing market and/or high levels of unsecured debt.

We have already seen an increase in the number of people coming to us for help and advice in respect of a shortfall created following a property repossession - we have had some excellent success stories in negotiating with the mortgage lenders in respect of those shortfalls.  We have assisted many individuals to avoid Bankruptcy through our negotiating service.  If this is a situation you find yourself in, please do seek help and advice as soon as possible.  Please telephone us today on 01423 799141.

The News Bulletin 

We publish regular News Bulletins which are made available to subscribers of our organisation. Their purpose is to keep subscribers up to date with our activities, any developments and events in the world of Insolvency. Detailed below are a number of extracts from recent News Bulletins. To receive our current News Bulletin and future copies, you may wish to subscribe.

Council Tax Bankruptcies

We are dealing with an increasing number of people who are being made bankrupt for arrears of Council Tax. More and more local authorities around the country are using bankruptcy as a method of debt collection and, given the amount of revenue they are collecting by doing so, we can foresee this action being continued for some time and by an increasing number of local authorities.

Those people with Council Tax arrears and substantial equity in their home are the main target for this action. Around 30% of debtors do not react to the threat of bankruptcy and subsequently have a Bankruptcy Order made against them. In one instance, our subscriber was made bankrupt for just £1,200 and he had no other creditors. He was, however, the sole owner of a property with in excess of £50,000 equity. The final sum needed to pay the debts and costs of the bankruptcy – and thus avoid the loss of his home – was around £45,000. That included Trustee’s fees and the Trustee’s legal fees of around £35,000.

I appeared on ‘The Politics Show’ on BBC1 on Sunday, 24 June, where this subject was debated. On the show, Hazel Blears, a Government Minister, commented that people had an obligation to pay Council Tax and if they did not, they must suffer the consequences. A person who had been made bankrupt was also interviewed, as was an Insolvency Practitioner who defended a Trustee’s costs in cases such as this.

I was not surprised at the differing opinions on the subject, however, no-one – other than myself – seemed to find it immoral that a debtor could lose his home for an original debt of just £1,200.

I also had a lengthy meeting with one of the Deputy Registrars in the High Court about the number of these petitions being issued. He expressed concern that it was the more vulnerable members of society who were suffering the most – in his experience many people who were being petitioned for bankruptcy for Council Tax arrears were not eligible to pay Council Tax in the first place but had not sought/received the advice or State Benefit to which they were due. 

Divorce Settlements Overturned by a Trustee in Bankruptcy

It has come to our attention that there is a reasonably new approach being brought by Trustee’s where the Bankrupt has been recently divorced and a legal financial settlement agreed.

In a recent case Hill -v- Haines the Trustee sought directions from the Court as to whether he had an interest in a property which had been awarded to a wife in a legal financial settlement. Her husband subsequently went into Bankruptcy. Effectively, the court held that a matrimonial order which alters the manner in which a property is held by joint owners is a transfer which is capable of being set aside by a Trustee as a transaction at an undervalue.

In short, any legal financial settlement in respect of Divorce proceedings which took place within 5 years prior to the Bankruptcy petition is capable of being treated as a transaction at an undervalue. 

Best Advice – We don’t think so…

The following are just a few cases we have dealt with recently –

1. Husband earns £700 per month, his wife earns £400 per month. Debts of £50,000 between them with no assets. Approached ‘IVA Factory’ who advised them to propose an IVA, based on contributions from income of £790 for the first nine months and then £250 per month for the following five years. The proposal was refused by creditors. Are we surprised?

2. A light goods vehicle driver, employed on a PAYE basis earning £1,300 per month. Debts of £80,000. Living in local authority rented accommodation. Recommended by ‘IVA Factory’ to submit proposal for IVA with monthly contributions increasing from £250 to £800 per month, over a period of five years. The debtor is 63 years old.

3. Home owner with £80,000 equity in property and debts of £25,000 on three credit cards. Advised by small firm of insolvency practitioners to submit proposal for IVA ‘which would allow him to remortgage to raise funds to pay unsecured creditors’. The insolvency practitioner wanted £4,000 up front, before he would submit proposal to creditors. We wrote to the unsecured creditors, advised them of the debtor’s current problem but that he would seek a remortgage of his home to pay them in full. Recommended our mortgage brokers and matter was completed in 9 weeks. Our fee? Just £350.

4. Married couple advised, two years ago, to make a proposal for an IVA. At that time they had unsecured liabilities of £90,000. They were the joint owners of their matrimonial home which is currently valued at £187,000. The current mortgage outstanding is £146,000 and they have a second charge/secured loan for £75,000. Joint income into the household is £2,900 per month and they have maintained the contributions to the IVA until last month. They are required to contribute every penny of disposable income per month and have lived and are living, in very reduced circumstances. The IVA will no doubt fail in the next couple of months. To date, no dividend has been paid to creditors and, after two years, the debtors are in a worse position than they were two years ago. In addition, they were never advised about bankruptcy but ‘sold’ an IVA as the only option available to them.

These debtors may, indeed, have shown a degree of naivety. However, the Supervisor of the IVA had/has a duty to provide best advice.

5. Another recent case in which we were involved required a full and final payment of £92,000 (exactly the equity in the debtor’s property) when the debts of the bankruptcy were just £6,500.

Self Regulation – Does it Work?

We believe it is self evident – just from the above few brief examples – that there is a huge question mark over the issue of self regulation. Not only do we have members of the profession making judgements and decisions on other members of their own profession, but we have nine professional bodies issuing licences and regulating members.

Having discussed this matter with countless insolvency practitioners, we firmly believe that the vast majority of the profession are unhappy about the situation. The majority of insolvency practitioners do a decent job in, often, very difficult circumstances. WE believe the general consensus of opinion of the profession is that regulation should be simplified and regulation should be such that the ‘bad apples’ are removed. That, in turn, would (hopefully) improve the reputation of the profession as a whole.

Insolvency Practitioners Fees

The greatest number of complaints we receive are about the fees charged, particularly, by some Trustee’s in Bankruptcy. Articles earlier in this bulletin illustrate some of the situations we have come across recently. We also regularly hear from people who have been very badly advised by so called ‘debt advisors’ who have often charged exorbitant fees for the poor advice provided. We have vast experience of dealing with debtors and bankrupt people. We, I would suggest more than many other organisations, understand that people in this situation are not the most financially aware, are often naïve about financial matters and are somewhat lax in dealing with their financial affairs. Those shortcomings, however, should not give either insolvency practitioners or other debt advisors, the right to abuse them. It is a constant source of amazement that a profession dealing with people in debt have such high charge-out rates. I would suggest that some of the highest fees we see on cases are from Trustee’s in Bankruptcy whose approach is often ‘a sledgehammer to crack a nut’ – the Trustee is not prepared to take any time to explain the situation, the bankrupt does not understand and the result is often extreme action which could have been avoided with a little common sense being exercised.

Mortgage Facilities 

Our relationship with our mortgage brokers who specialise in assisting people with adverse credit history is a very important ‘back up’ to the agreements we reach with Official Receiver’s and Trustee’s in Bankruptcy to secure the homes of our subscribers. Few mortgage lenders will consider applications from people who have been bankrupt or subject to an IVA, etc. It is, therefore, very important that we are able to recommend brokers who are able to assist people in this situation. They are totally independent and will simply locate the best lender for a person in a particular situation. If you would like their details, please call either Jo or I.