Women Bankrupt in the UK
The number of women declared bankrupt has risen nearly fourfold in just six years.
They now make up almost four out of ten cases, with women under the age of 35 most likely to suffer financial collapse
Figures from the Insolvency Service showed that 23,173 women were declared bankrupt last year, up from just 6,641 in 2002.
Among men the figure was 37,972, roughly two and a half times the 15,741 declared bankrupt in 2002.
This means that six years ago women made up 30 per cent of bankrupts, but by last year that had risen to 38 per cent.
Overall, those most likely to go bankrupt are aged between 35 and 44. But among women the most likely age is between 25 and 34.
Women are now going bankrupt at the rate of 60 a day. The rapid rise of female financial failure is likely to be linked both to overspending when credit was easy and the vulnerability of growing numbers of women who do not have the backing of marriage and family.
‘More women are racking up unmanageable debts as they now feel more under pressure to maintain lavish lifestyles,’ a spokesman for price comparison website MoneyExpert.com said.
‘They want to spend it like the Beckhams but don’t have the income to sustain their debts.
‘Increasingly they have to borrow more to get on the property ladder – and if they live alone there’s no one else to share the burden.’
He suggested that too many women had used too many credit cards and ‘lived ahead of their income’.
Accountancy firm Wilkins Kennedy said it had dealt with a rise in numbers of female bankrupts and believed bankruptcy among women would match levels among men later this year.
Speculation by Labour ministers that women are especially vulnerable to being laid off in the recession were dismissed last month by the Office for National Statistics.
It said women are losing jobs at half the rate of men, and are protected because more women than men work in the public sector.
But the bankruptcy figures suggest women are suffering for reasons beyond cuts in jobs and pay.
Studies have repeatedly shown that divorce leaves women worse off than men, mainly because women usually take the children.
But if a cohabiting couple break up a man has no financial responsibility towards a woman. Four to five million Britons cohabit.
And a growing proportion of women have chosen to stay single either to pursue careers that may now be in doubt, or because of a benefit system that rewards single mothers but penalises couples.
Robert Whelan of the Civitas think tank said: ‘Most of us get into financial trouble from time to time and we rely on our families to help us. These bankruptcies are a result of too many women on their own with no support.’
My advice? Avoid credit cards
Kellie Kane, 38, used to be in charge of an independent consultancy with an annual turnover of £1.5million.
The 38-year-old, pictured, had run Recruitment Specialists, based in Sittingbourne, Kent, since 2003.
But in February she declared herself bankrupt because she couldn’t pay off her credit card debts.
Miss Kane, of Brixton, South London, said: ‘This is the last thing I’d ever imagined would happen to me.
‘My business was going very well, fantastic in fact. That was the reason I was able to borrow on the cards.
‘When things started to get difficult, I stopped taking a salary because I wanted to protect my staff.’
After being declared bankrupt she said: ‘If I can give people just one piece of advice, it’s this – never get a credit card.
‘This was a heartbreaking experience. Now I’m going to start picking up the pieces of my life.’
Miss Kane has since started up a dog walking and pet sitting business in South-West London.
Giving Up the Fight
‘I don’t have any cash left – I’m living on eggshells’: Debt advice services reveal the human misery at the sharp end of the recession
It is the voice of someone who has given up the fight. After struggling to protect her home from creditors for more than a year, she realises she has failed. It is 11.20am and Financial Mail is listening in on phone calls to debt charity National Debtline.
The caller, a middle-aged woman, has managed to fend off repossession of her home for the past year. But in concentrating her limited income on keeping her mortgage lender happy, other creditors have been ignored and have stepped up their demands.
The woman owes £26,000 through a series of credit and store cards, personal loans, a bank overdraft and catalogue shopping debts. Some creditors have gone through the courts to get charging orders on her home. Each order allows a creditor to force the sale of her home.
This is the sharp end of credit crunch Britain. Advice services such as National Debtline have experienced an explosion in inquiries over the past six months.
Adviser Aiden Tidy is trying to be the calming voice at the other end of the phone at the
National Debtline offices in Birmingham. He explains the legal process and highlights the limited choices left open to the caller.
‘I’m resigned to leaving the house,’ she says. ‘I can no longer afford to maintain it.
Again, it is a problem Aiden is familiar with. He advises that most utility companies run charitable foundations that will pay bankruptcy fees. He also arranges for an application form to be sent to the caller. The whole advice process lasts nearly an hour.
Aiden, 23, who used to work for a debt collection company, has been a debt adviser for three years.
‘The calls come from right across the income ranges,’ he says. ‘We are getting more calls from executives and professionals who have lost their jobs and cannot afford to maintain their lifestyle.’
Graham Steele is one of 90,000 borrowers who has sought advice from National Debtline. He called last October after he realised he was becoming overwhelmed by debt.
Trapped: Graham Steele is seeking bankruptcy over his £56,000 debt
Graham, 42, from Cannock, Staffordshire, says: ‘My marriage had broken up and I had been in and out of work.
‘We’d spent money we didn’t have and the loans and credit card bills were out of control. Previously, my credit record was impeccable, so I was in the position of having access to lots of credit – and that was part of the problem.’
Graham, who now works as an office administrator, owes about £56,000 of unsecured debt with little prospect of repayment based on his current income.
‘I borrowed money with every intention of paying it back, but circumstances change,’ he says. ‘I was getting lots of aggressive letters from creditors and you just feel lonely and vulnerable.
‘I called National Debtline and they were calm and reassuring. I didn’t feel judged in any way and I got the information I needed.’
Graham thinks his only option is to file for bankruptcy and he is in the process of raising the court fees he needs to do this.
Paul Mullins, National Debtline chief executive, says: ‘In January 2008 we were receiving 800 calls a day. So far this year we have averaged 1,600. It’s a reflection of what is going on out there and the rapidly deteriorating economic situation.’
There is a similar story at the Consumer Credit Counselling Service, another debt charity.
Spokeswoman Frances Walker says: ‘The phones haven’t stopped ringing since last summer. We had 3,000 calls on the first Monday of the year, which was a record for us in a single day. It has been averaging 2,000 a day since.’
Citizens Advice, which is also on the debt advice front line, has seen a big increase in the number of people with problems of secured debt, mortgages and loans linked to their homes.
National Debtline was awarded an extra £5.8million by the Government last year to pay for 50 more advisers. But even its recruitment process shows how recent redundancies are fuelling the debt crisis as last month it received more than 5,000 applications for the 50 trainee places.
One problem is that many of those struggling with debt fall into the hands of agencies who charge high fees for advice that is available for nothing.
Across the office from Aiden, Mark Pearson, 26, is helping a caller in this position. She has been quoted £400 by an agency to run a debt management plan – a formal scheme where you pay an agreed sum each month to a third party, which then splits this between your creditors.
The fee is something she can barely afford and is money that could be going to cut the overall debt.
Mark explains that organisations such as Payplan and CCCS will do the same at no cost – and suggests the caller cancels her debit card so there is no way the agency can take money from her account.
Mullins says it is always better to ask for help than to suffer in silence.
‘The earlier you call the better, but it’s never too late to seek help,’ he says.
‘If you act in a sensible and open way with your creditors, most of the time you can
Paul Shanon
The patient
Paul Shannon, 26, is determined to put his finances in order after finding himself trapped in spiralling debt. “Six years ago I took out a loan for £7,000 to consolidate debt on three credit cards and five store cards,” he explains. “And I had difficulty paying this off, as every time I came close to wiping it out, I was tempted by offers to increase the loan amount.”
However, he has steadily managed to slash the sum he owes, and is now paying £150 a month for a 24-month £2,800 personal loan with Abbey at 25 per cent.
“The rate is staggeringly high, but my previous loan rate was even higher and I had trouble getting anyone to lend to me after being a moron with money,” he recalls. Paul insists that he will avoid taking on any further debt once he is back in the black.
He is also £800 overdrawn on an Abbey current account at 12.9 per cent. “I always seem to be living in this overdraft, although I’m not too worried about it as the cost seems quite low.”
Paul has almost finished training to become a police community support officer, on a salary of £25,000. When he qualifies, he will be working in the upmarket London borough of Kensington and Chelsea.
He is currently renting a one-bed flat in Surbiton, Surrey, and splits the £650 monthly cost with his girlfriend.
“Ultimately I’d like to buy my own place, but that’s a long way off at the moment,” he says. “More immediately, I would like to be able to afford to buy an engagement ring.”
After all his outgoings, however, Paul finds he can’t afford to set aside any money. He starts each month with good intentions, putting £50 into an Abbey savings account. But this sum is swiftly withdrawn to pay bills and to make ends meet.
“The aim of saving is there, but I never quite manage to build up any funds,” Paul explains. He does have £100 in Premium Bonds.
For longer-term financial planning, he will soon be joining the police pension scheme, which is one of the most generous in the UK.
The cure
Fortunately, Paul is still young and able to tackle his debt before it escalates again. Our panel of independent financial advisers (IFAs) also stress that he has learnt a valuable lesson – not to bury his head in the sand, because debt doesn’t go away.
The most important step he can take towards sorting out his finances is to maintain the debt repayments, and avoid taking on further loans, and digging a deeper hole, in the future.
Debt
Consolidation loans are a tempting “quick-fix”, offering a single repayment over a fixed term. But as Paul has discovered, these convenient solutions for the debt-weary can carry very high rates – particularly if you have a poor credit score and are taking out a short-term loan.
Often, people on consolidation products have been struggling for some time to clear their debts. And if they have missed repayments then their credit rating will be poor, meaning in turn that the interest rate on the consolidation loan will be higher than normal.
However, because Paul does make regular repayments, his credit rating will gradually improve. It is unlikely he will be allowed to make any over-payments on the loan, but he may be able to renegotiate the rate in six months when his financial circumstances improve.
“The risk of these loans is demonstrated by Paul, as he took one out and ran up debt again, putting himself back at square one,” says Andrew Hagger from the personal finance advice site Moneynet.co.uk.
The advisers add that, ideally, starting married life debt-free should be Paul’s goal. Cutting back on spending now will put him in a strong position.
If he can make small sacrifices by cutting down on social activities, for example, he should be able to pay his debt down, along with his overdraft. “He should also be in a position to save for the ring – but he needs to decide what is more important,” says Adrian Kidd from IFA Unleash Advice Partnership.
And on the subject of the engagement ring: “He must only buy this when he has the money to pay for it,” warns Mr Kidd. “He must avoid falling into the same trap as before by taking a loan to cover the cost.”
While his overdraft may be at a lower rate than the personal loan, it still needs to be tackled. And a general rule is to pay off your debts before starting to save. The amount of savings income he could enjoy is dwarfed by the interest rate on the overdraft.
Savings
When Paul has cleared his debt and is able to start putting money aside, he should open a cash individual savings account (ISA) rather than continue putting money into the Abbey account. He will earn tax-free interest on this and can invest up to £3,600 during each financial year. So he could, for instance, make regular savings of £300 a month.
With interest rates currently at historic lows, Paul isn’t missing out on much by not being in a position to save at the moment. When the time comes, however, he should make sure to check for the best rates available on comparison sites such as Moneyfacts.co.uk.
“If Paul finds it difficult avoiding temptation, and tends to withdraw anything he saves, then he should consider paying into an account with a notice period,” adds Hugo Shaw from IFA Bestinvest. “This way he has to think a little harder before he pulls it out, and it could help him develop a better saving discipline.”
As a matter of course, Paul should aim to build up a savings cushion equivalent to three or six months’ salary, in case he can’t work due to ill health or unemployment.
Writing a budget will help him establish a means of slotting away spare cash, says Danny Cox from IFA Hargreaves Lansdown. “Paul should look at his expenditure over a month and he will probably find, as most of us do, that he cannot directly account for where his money goes.”
Spending should be divided into three areas to see what can be easily cut out: essential outgoings such as rent and bills; important, but non-essential, outgoings including running a car; and luxuries such as holidays and alcohol.
Retirement
The Police Pension Scheme is a government-backed final salary fund. Paul is lucky to have access to this as it is a “relatively generous” scheme, says Mr Shaw.
In the future, he could make additional contributions to boost the basic benefit.”But this may be difficult to achieve for some time, given other demands on his finances.”
Protection
Paul has no dependants, so there is no need for life cover. Meanwhile, the package on offer as a police community support officer will provide a good level of protection in the future.
“Joining the police will give him entitlements to some excellent employee benefits, including death-in-service and sickness benefits,” explains Mr Cox. This will provide a strong foundation for his financial plans, leaving him free to focus his earnings on saving and, more immediately, paying down his debts.
