Personal Insolvency

Some Thoughts from Academia on the Current Debt Environment and the Need for More Research

January 2008

 

 I have been asked to write a small piece for this excellent website on personal insolvency. Hopefully it will be the first of a number of submissions. That is if they are sufficiently interesting and informative! The recent press coverage of the global credit crunch, the run on Northern Rock, increasing fuel bills, ever more expensive mortgages and falling house prices is worrying. These worries are exacerbated for those who are already facing financial hardship due to other perhaps unforeseen pressures. However, these ‘high level’ problems that have led to personal financial problems were surely not unexpected.

This proposition does not make the position any easier for those suffering financial hardship, but it has given rise to some interesting evidence on the drivers of personal insolvency. The debate on irresponsible lending/irresponsible borrowing has been well aired. It is perhaps only now that we are seeing real supporting evidence for both sides of the argument. The sub-prime mortgage exposure and restrained activity of banks to loan between themselves must go to support a number of propositions made in the Bankruptcy Courts Survey 2005 (BCS 2005) regarding lending practices. Similarly, the record numbers of shoppers loading their credit cards leading to some accountancy firms predicting over 170,000 bankrupts in 2008 must support the converse. Is debtor education an answer?  

The follow up research project to the BCS 2005 (again sponsored by the Insolvency Service) has now been completed and will published in the next few months on the Insolvency Service website. The ‘Personal Insolvency Project’ (PIP) report has a number of interesting findings, particularly on the credit environment, and on providers of Individual Voluntary Arrangements (IVA). One startling fact however came out of the research on Debtor Education. As part of the project we offered free three-hour workshops on various aspects of personal finance (please see the final report for an excellent guide to personal finances and Martin Lewis’ excellent website - http://www.moneysavingexpert.com/). Despite sending invites to over 2,000 debtors in the Kingston and Croydon area (individuals who had been made bankrupt or been through and IVA) only six people attended. Yes only 6 people! Despite nearly 90 people saying they would attend from our sample. This is very, very disappointing. If individuals with a record of financial problems are not prepared to engage in free education on better fiscal management then what is to be expected of those who have not passed through an insolvency procedure? A further ten sessions were then scheduled following the research across London. These events were to be held at Kingston University and the Insolvency Service. KPMG LLP, the accountancy firm provided £500 to pay for refreshments, advertising, etc. These events were all cancelled due to a lack of interest and take up. This is despite widespread advertising in Citizens’ Advice Bureaus across London and elsewhere. Perhaps there were methodological problems with the session and the advertisements, but this small sample does not bode well for future personal insolvency usage.

Much research remains to be done on the personal side of the subject. Professor Walter’s PhD student’s thesis (‘The 21st Century debtor: understanding the main drivers of individual insolvency in England and Wales.’) at Nottingham Trent University is eagerly anticipated. Professor Iain Ramsay has also returned to English personal insolvency scholarship following a long period in Canada. He now holds a chair at the University of Kent and will bolster research on personal insolvency within this jurisdiction.  

Along with Susan Morgan (KPMG) and Philippa Daniels (7 New Square) I am currently writing a 300,000 word practitioners text for Jordans Publishing Ltd on personal insolvency. We are hoping to draft the work in an accessible manner for the layperson as well as the insolvency lawyer and insolvency practitioner. The book will be published in October 2008. In the meantime please see Professor Muir Hunter QC’s very accessible text – Hunter, M. Going Bust? How to Resist and Survive Bankruptcy and Winding Up. ISBN: 1858113687. XPL Publishing, which retails at £20.00. It is perhaps expensive for those in financial difficulty, but it is an essential guide to those intending to navigate the bankruptcy jurisdiction.

And finally…..

Ms Gill Hankey of the Bankruptcy Advisory Service (http://www.bankruptcyadvisoryservice.co.uk/) received recognition in the recent New Years Honours list. She is now Ms Gill Hankey MBE. This civil honour is extremely well deserved as she has worked tirelessly on behalf of bankrupts and others in financial difficulty over the last 14 years. Congratulations to Gill. 

 

John Tribe

KPMG Lecturer in Restructuring

Kingston Law School, Kingston University