Bankruptcy loses social stigma

by Gill Montia

Story link: Bankruptcy loses social stigma

Figures from the Ministry of Justice released at the end of last week show that bankruptcy is losing its social stigma.

In 2007, 75% of individuals who petitioned for bankruptcy did so voluntarily. While overall bankruptcy petitions fell slightly last year, 53,114 people brought their own petitions, up from 52,717 in 2006.

Meanwhile, figures from the Insolvency Service for 2007 show a sharp fall in the number of people entering into an individual voluntary arrangement (IVA).

The decline can be attributed in part to a dispute between debt management companies and banks.

The banks objected to the level of IVA payments being offered, suggesting that firms involved in arranging them were promoting low payments but taking generous fees.

The dispute has now been resolved and Mike Gerrard, head of personal insolvency at Grant Thornton, the accountancy firm, says: “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.”

During 2007, the number of companies seeking liquidation also fell, to 11,791, down from 12,103 in 2006, but again this figure is expected to rise.

Paul Stanley, a managing partner at Begbies Traynor, the insolvency practitioner, says: “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.”

Bankruptcy is not necessarily an easy way out of debt. While a bankrupt can be discharged after one year, the affect on a person’s credit rating can last for six years.