New research by the housing charity Shelter revealed that over 1 million people in the UK used a credit card to pay their mortgage or rent in the last 12 months.

This takes me back to the height of my own debt problems and really looking back it was inevitable that I would eventually end up with everything crashing around my ears. The problem that I see is that people don’t realise that there are options to help them get through their debt problems. Indeed if I’d realised it myself I would have stopped borrowing to pay debts, and avoided bankruptcy altogether. I went on far too long, and in the last year of my debt problems, I increased the total of my unsecured debt by at least £60,000 and this was purely taking out extra finance to pay debts with, because I couldn’t afford the payments from my salary.

The blessing is that eventually there was nowhere to go for more credit, and I had to face up to it, but my prayer is that people will actually look for advice much earlier than I did. There are several options and of course bankruptcy is a good option when you’ve reached the end point and can’t afford any other option. But if you catch it early enough you may well be able to go for the option of a Debt Management programme or an IVA, both of which can help you to avoid losing your house, and result in the write off of large proportions of your debts.

There’s been some concerns expressed recently about the leniency of the UK’s bankruptcy laws and procedures. The Daily Mail reported recently that relatively small numbers of people are setting up a base in the UK in order to go bankrupt, knowing that they will be discharged after 12 months. Other countries have much harsher restrictions which last for much greater lengths of time. Germany is a case in point where bankruptcy lasts for 7 years.

Of course you could project that this problem might get worse. We’ve got record numbers of people going bankrupt during the recession, and my observation is that the Official Receiver’s offices are overwhelmed by the numbers. They don’t seem to be carrying out the processes that they did previously and I’ve even heard that discharge is automatic after 12 months in a large number of cases.

So the UK is increasingly the best place to go bankrupt. At a time of world recession, will this lead to increasing numbers of bankruptcy tourists?

Of course, bankruptcy should always be seen as the last resort. In the UK we also have IVA and Debt Management options which do not have the same implications as bankruptcy, and which are seen as better alternatives in the majority of cases. If you do need to go bankrupt make sure you speak to someone who can provide you with free bankruptcy advice. It’s not always the right solution, but it can be a great option for some people.

I was talking with someone today who has been out of work for about 6 months. He hasn’t been able to make all the payments on his debts. He hasn’t been paying the mortgage, loans, council tax or utility bills. In fact the income he’s had has only paid enough to pay for food.

The good news is that he’s just been offered a job, and his wife has also started work, so things are on the up for them. The new challenge is negotiating with the creditors now that he has an income. Just when he thought that he’d be able to start paying for everything, he’s being hit with all the penalties for the things he hasn’t been able to pay.

His mortgage provider wants him to pay the arrears by increasing his payment for the next 12 months. The council tax has to be paid by month 10 of the cycle, so he’s under pressure to pay the whole year’s tax in just a couple of months. The utility companies are threatening to install prepayment meters in his house, unless he clears the debts over a short period of time, with quite a significant deposit.

This is a time when he might be wise to look at a debt management plan to reduce the amount of his unsecured debts. he probably doesn’t need an IVA, because his new job will provide him with enough income to eventually clear his debts. Just a few months ago he thought he was facing bankruptcy, but now he’s thankfully in a position where he can recover with a bit of careful management.

Today I was talking to someone who is desperately struggling to meet all the payments on their bills, including their mortgage, credit cards, loans and household bills. It all adds up to more than they have.

With house prices falling and no sign yet of a solid recovery, they find themselves with no way out of their house. The guy was assuming that repossession isn’t far away or even bankruptcy.

He’s made the classic mistake of continuing to borrow until he has nowhere left to go. Things are far worse than they would have been if he’d stopped and spoken to someone a year ago.

I explained some of the options to him, in particular a debt management arrangement or an IVA. You see he can actually afford to pay his mortgage is he can reduce the amounts that he needs to pay to his other creditors. He isn’t ready for bankruptcy, because he has enough income to cover the mortgage and other living costs, and still make a satisfactory offer to his creditors for reduced payments.

He could be out of debt in 5 years, and that was something he couldn’t imagine earlier. The most important part of this story is that it’s important to talk to someone. People assume that there is nothing out there to help them, but you really can avoid losing your home and avoid bankruptcy in many cases.

It was really great to see the smile on the guy’s face after we’d talked. I remember being in the same situation myself just a couple of years ago. The day I spoke to someone I had the best night’s sleep I’d had in a long time. Now that he understands what an IVA is, and what the implications are, he’s fully equipped to go ahead, and he’s starting the process immediately.
Do yourself a favour if you’re struggling. Talk to someone who understands your options and can give you free advice. You’ll be so glad you did.

These 700,000 ‘hidden debtors’ are the latest estimate from a government survey, conducted in consultation with R3,  the Association of Business Recovery Professionals, of the number of individuals in Great Britain who are currently in a Debt Management Plan (DMP). This is an informal repayment plan that offers reduced monthly payments to the creditors on behalf of the individuals in debt. The 700,000 Debt Management Plan’s  dwarf the combined total of those in an Individual Voluntary Arrangement (IVA) and those who declared bankruptcy which amounted to 190,000, in total, by the end of 2008.

The number of individuals entering into a Debt Management Plan to address their financial difficulties has also increased dramatically by 17% in the seven months from August 2008 to February 2009. With the effect of the recession digging deep into people’s pockets this number is only going to keep increasing this year. It has been stated that the “peak” of the affect of the recession has not been felt yet by people trying to manage their finances through the recession. Unfortunately, due to redundancy or reduced working hours, more and more people are dusting off the credit cards they reserved for emergencies to assist with their day to day living expenses whilst they hope the situation improves.

In the second quarter of 2009 a staggering 33,000 people were declared insolvent in England and Wales, with experts warning that we haven’t yet hit the peak. These are the highest figures since records began in 1960, but estimates of up to 130,000 personal insolvencies by the end of the year have been mentioned.

Experts from PricewaterhouseCoopers suggested that previous recessions have shown that the peak of insolvencies does not occur until two years after the worst period of the slump, with the full effects taking time to trickle through.

Interestingly this is making bankruptcy an option that people no longer view as such a stigma. People are recognising it as a way of closing an unfortunate chapter in their lives and moving on to a fresh start.

Of course bankruptcy still has its own implications, and it’s important to consider that it places restrictions on the individual concerned e.g. inability to be a company director, and that it results in assets being handed over to the official receiver. It’s also important to understand that the judge will want to know that the right advice has been sought before filing for bankruptcy, and that options such as IVA and debt management have been considered and ruled out.

The message is that there are options for anyone who has debt problems, and that these need to be considered fully. You shouldn’t opt for bankruptcy, which many people see as the last resort, until you’ve sought proper advice.