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3 June 2011 Last updated at 15:17

Debt experts’ warning over rising bankruptcy costsBy Simon Gompertz Personal finance correspondent, BBC News

There are various options for people who face insolvency

people with financial problems from seeking a solution, debt experts are warning.

The fee for petitioning for bankruptcy rose by £75 to £525 at the start of the month. With the court fee added on, the total upfront cost is £700.

The Insolvency Service said the increase was needed to cover the cost of administration.

The charges, including court fees, have gone up by 37% since March last year.

Insolvency practitioner Mark Sands, from RSM Tenon, has warned that the increase would put extra pressure on individuals who were likely to be under stress or depressed.

“So many people flounder around and do not see a way out,” he said.

“They are going to be put off exploring bankruptcy as a solution.”

Squeeze

The £525 charge is a deposit to cover the cost of managing a bankruptcy, which allows the bankrupt person to throw off the burden of debt and make a fresh start.

The Insolvency Service recovers a full administration fee of £1,715, less the deposit, from the bankrupt’s assets or surplus income at a later stage. This sum is not being increased.

Forms of insolvency

• Bankruptcy: The traditional way of escaping overwhelming debt. Ends after one year, but you are likely to lose all your assets including your house to pay something to the creditors
• Individual voluntary arrangement (IVA): A deal between you and your creditors, overseen by an insolvency practitioner. Less stigma, less chance of losing your home, but involves paying some of your debts in one go or over a number of years
• Debt Relief Orders: Introduced in April 2009, these allow consumers with debts of less than £15,000 and minimal assets or surplus income to write off debts without a full-blown bankruptcy

“The fee is staying the same but we are increasing the proportion of that fee which we get on day one,” said the deputy head of the Insolvency Service, Graham Horne.

The Insolvency Service has seen its income squeezed because of the falling value of homes and other assets which are recovered from bankrupts.

Currently, the £1,715 fee is never fully paid in half of bankruptcies.

There has been some criticism of the rising cost.

“It is unfair to families who are struggling but I felt that any money I had was going to be taken anyway,” said a recent bankrupt who spoke to BBC News,

Jon Elwes, from the Money Advice Trust, said: “This increase in the cost of going bankrupt is likely to swell the numbers of people falling through the net of the current insolvency regime.

“Our advisers at National Debtline speak to people everyday for whom bankruptcy would be the best solution to their debt problem, but for the fact they cannot afford the associated fees.”

Lower cost

There is now a cheaper and easier alternative, the Debt Relief Order (DRO), which costs £90.

We have to strike a balance between giving bankrupts debt relief and a fresh start, and the need to provide some return to creditors”

End Quote Graham Horne Insolvency Service

An increasing number of people who are in financial trouble and looking to escape their debts have been avoiding bankruptcy and taking this lower cost route.

In the first quarter of this year there were 6,788 DROs, a 20% rise on the previous year.

However, people can only ask for a DRO if their debts are less than £15,000 and savings and assets are less than £300.

“What if you have £16,000 of debt?”, said Mark Sands of RSM Tenon.

“You are faced with that barrier of hundreds of pounds before you can opt for bankruptcy to resolve your difficulties.”

Una Farrell, from the Consumer Credit Counselling Service, said: “It is a very steep rise. We already have to do a lot of work helping our clients to get the money together to pay the fees.”

But Mr Horne said the Insolvency Service was obliged by Parliament to break even, a task which had become increasingly difficult.

“It has always been our policy that if bankrupts can pay something towards their debts then they should,” he said.

“We have to strike a balance between giving bankrupts debt relief and a fresh start, and the need to provide some return to creditors.”

5 May 2011 Last updated at 13:03

UK interest rates have been kept at the record low of 0.5% again by the Bank of England’s Monetary Policy Committee.

Data this week pointed to a slowdown in growth in manufacturing, construction and services, which economists took as a sign that the Bank would not change rates with the recovery still weak.

This is despite the fact that inflation is currently at 4%, double the Bank’s target rate.

The MPC did not reveal any new quantitative easing measures either.

Separately, the European Central Bank also held rates for the eurozone, after raising them from 1% to 1.25% last month.

Split committee

The Bank has faced a difficult choice – either keep interest rates low to try to aid the economic recovery, or raise them to try to cool inflation.

Raising rates takes demand out of the economy and slows down inflation.

But it also increases the cost of borrowing, and there are concerns this may tip the UK back into recession.

The economy shrank by 0.5% at the end of last year, but returned to growth in the first three months of 2011, expanding by 0.5%.

Although the Bank was widely expected to leave rates unchanged, some members of the committee have been pushing for an increase.

At the MPC’s April meeting, three out of the nine members voted for a rise.

13 April 2011
Employment Minister Chris Grayling: “The fall is a small step in the right direction”

UK EconomySurprise fall in inflation to 4%

UK unemployment fell by 17,000 in the three months to the end of February to 2.48 million, the first drop since last autumn, official figures show.

The Office for National Statistics (ONS) said the rate of unemployment in the UK had fallen to 7.8%.

Unemployment among 16 to 24-year-olds stood at 963,000, with the jobless rate for young people remaining above 20%.

The number of people claiming jobseeker’s allowance rose by 700 in March to 1.45 million, the ONS said.

While the number of unemployed men fell by 31,000 in the three months to the end of February, the number of jobless women rose by 14,000.

Although the number of unemployed 16 to 24 years olds rose by 12,000 over the quarter to 963,000, there had been fears the number could breach the one million mark.

The rate of unemployment among 50-64 year olds was unchanged at 4.8%, while the rate for those over 65 fell to 1.9% from 2.5%.

The ONS also said that the number people in employment rose by 143,000 to 29.23 million, compared with a pre-recession peak of 29.56 million recorded for the three months to the end of May 2008.

Howard Archer

IHS Global Insight
Spending power

“These figures are another step in the right direct direction,” said Employment Minister Chris Grayling.

“It’s good news to see a rise in the number of full-time jobs in the private sector and the fall in unemployment is welcome.

“However, there are challenges ahead and our priority is to continue to support the economy, by reducing the deficit and putting in place measures to encourage growth in the private sector.”

Total pay rose by 2% and regular pay, which excludes bonuses, grew by 2.2% compared with a year earlier, both well below the rate of inflation, as measured by the CPI index, which stands at 4%.

Analysts said this provided further evidence of the squeeze consumers were feeling in their spending power.

Spending cuts
Despite the fall in the number of unemployed, analysts warned that the jobless number was likely to rise again.

“We retain the view that unemployment is headed up over the coming months,” said Howard Archer at IHS Global Insight.

“We suspect that likely below-trend growth will mean that the private sector will be unable to fully compensate for the increasing job losses in the public sector that will result from the fiscal squeeze that is now really kicking in.”

The government is starting to introduce spending cuts designed to bring down the budget deficit.

The housing market in the East of England slowed further during March, with low sales levels and falling demand, according to the latest RICS UK Housing Market survey.

Demand for property remained low in the region, with 18pc more surveyors reporting a fall rather than a rise in new buyer enquiries.

Caution about the overall outlook for the economy and the prospect of future interest rate hikes were compounding the difficulties over access to mortgage finance for many first time buyers.

New instructions in the East of England, which indicated supply levels to the market, increased rapidly, with 47pc more surveyors reporting instructions rose rather than fell during March.

Newly agreed sales registered a negative reading, with a net balance of -15. Surveyors reported that the reluctance of vendors to further lower their prices remained a stumbling block to many would-be buyers.

Meanwhile, 16pc more chartered surveyors reported a fall rather than a rise in property prices. London was the only area of the country to report a rise in prices.

Price expectations for the East over next three months remained downbeat, with 27pc more surveyors predicting prices will fall rather than rise.

Looking ahead, eight per cent more surveyors in the region expected sales to decrease rather than increase.

RICS East operations director, David Potter, said: “The property market in the East of England reflects the general state of the economy. The low level of buyer interest in the region continues to impact on the market, resulting in some downward pressure on prices. With the prospect of forthcoming interest rate rises and continued shortage of mortgage funding, it seems that overall recovery for the region’s housing market is still some way off.”