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    The number of personal bankruptcies has reached a record high as borrowers struggle to cope with growing mortgage and credit card debts. According to latest government figures, there were more than 11,200 individual insolvencies in England and Wales in the second quarter of this year – an eight per cent increase on the first quarter and a third more than for the same quarter last year. Recent changes to the law that mean bankrupts can be discharged within as little as four months are believed to be encouraging borrowers with unmanageable debts to take this route. But experts say that bankruptcy should be the choice of last resort. ‘Anyone who views bankruptcy as the easy way out is badly mistaken,’ says Phil Stone at the Bankruptcy Advice Centre, based in Gatwick, West Sussex. ‘The only people who should go down this route are those who really have nothing to lose.’
    If you declare yourself bankrupt, it will mean form filling and a visit to the County Court, or High Court in London. A fee of £450 is payable to the courts and an official receiver will be appointed as trustee of your estate. Anything you own before and during your bankruptcy, including any inheritance you may acquire during that time – and often a portion of your income – will be taken by the trustee to be passed on to creditors. Stone says: ‘If you have a house, a car, life insurance or a business, you will have to be prepared to lose them. Any bank accounts, savings and credit card accounts you have will also be closed.’ Obtaining credit can be almost impossible as bankruptcy will show up on a credit reference file for six years.

    Rosalind Pearson at the Citizens’ Advice Bureaux says: ‘Creditors always prefer to receive some money rather than nothing at all, so they are often willing to negotiate and even restructure your repayments.’ Some borrowers may be offered the option of setting up a more formal payment plan called an individual voluntary arrangement, or IVA. But this only suits those with a regular income. Borrowers should bear in mind that it will mean they are paying off their debts over a much longer period, typically five years. Also, because of the costs of setting up an IVA, it will generally be unsuitable for those with debts of less than £15,000.

    (Mail on Sunday 22nd August 2004)

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