What drives people into unmanageable debt?

By Mr Bankruptcy

30th September 2024

Facing an unmanageable debt is a tough experience but someone not in that situation might assume it was your fault – you can’t manage your finances or spent money recklessly. But it’s rarely as black and white as that; and debt problems are affecting more and more people in the UK.

According to The Money Charity the average level of personal debt in the UK at the start of 2024 was almost the same as the average UK annual wage – and it’s rising. And the reasons why individuals get into that situation vary hugely with personal circumstances.

The most common causes of personal debt

According to the data collection service Statista, common causes of household debt in 2022 included, in order:

  1. Lack of financial control (17%)
  2. Cost of living (15%)
  3. Unemployment (12%)
  4. Drop in income (10%)
  5. Health problems/injury (9%)
  6. Broken relationships/separation (5%)
  7. Covid-19 (4%)
  8. An unplanned expense (3%)

Budgeting and the cost of living

I’ve written before in this blog about the importance of working to a budget to stay in financial control, especially if your means are limited. Knowing your income and outgoing can be crucial to identifying early on if you’re building up problem debt.

But life has become ever more difficult since the 2008 credit crunch, with global events, structural economic deficiencies and government policies adding to our woes. As a result, the price of essentials such as food, fuel, utilities and rent, have gone up relentlessly in recent years. Many people in low-income jobs who were already living on the edge of affordability are now struggling to make ends meet and can’t put any savings aside for a rainy day.

In addition, interest base rates are returning from record lows to more historic norms of around 4-5%. Even better-off borrowers are now struggling to absorb higher interest payments on their mortgages, business or car loans.

And when things get hard, it’s too easy to start racking up debt on a credit or store card without keeping track. Cheap retail credit is a thrill and looks like an easy solution at the end of the month, but failure to keep up with even minimum repayments can quickly pile up debt until it morphs into a serious financial problem.

Resilience

This leads on to the issue of resilience. According to the Bank of England, the average amount in a UK savings account is £17,365 but, when asked, around a third of adults had less than £1,000 in savings; many had nothing at all.

This explains why just over two thirds of those asked didn’t think they could survive for three months without work before borrowing money.

The upshot is that it would only take one unexpected event – a car needing replacing, a leaking roof, a family death – or a drop in income – through losing your job or serious illness – for someone who was just getting by to fall into an unmanageable debt spiral, especially if they have a large, regular outgoing such as a mortgage or business loan repayment to keep up.

Divorce and relationship breakdowns

It’s another event that no-one expects or wants, but households built on the basis of two incomes can be financially devasted if one partner moves out.

Legal expenses and maintenance, as well as a painful division of assets, can leave both sides struggling.

Business problems

The business environment is always challenging, and many businesspeople have to take on debt with a bank, either to start up or to tide their company over the bad times, in the hope that it moves back into profitability. However, this doesn’t always work out.

If, as a business owner or director of a limited company, you made a personal guarantee agreement with a lender, then you are still personally liable to repay the loan if your business defaults or becomes insolvent. If the debt is secured against, say, your house, you can lose it.

Managed debt

Properly planned and managed debt can be a good thing so long as repayments are affordable, allowing you to invest in something that will transform you or your family’s life, such as a car to take on a new job or a mortgage for a larger home.

But if that debt becomes unmanageable it can impact your whole life – friends, family and your mental health. No-one wants to be in that position, so we take a non-judgemental approach with all of our clients when we sit down with them to explore their circumstances and options open to you or your business.

Even when there seems to be no way out, there is always support available to talk – a professional debt advisor, charity or someone close to you – to help you see your way forward.

James Rosa Associates

James Rosa associates is a firm of debt advisors and debt adjustors. With a supportive, friendly approach, we offer a full range of advice and professional services to individuals and business owners/directors who face unmanageable debt and are looking for a solution. We also help anyone involved in a civil or commercial dispute with a range of services:

We are authorised and regulated by the Financial Conduct Authority (FRN665061) to work with clients to produce bespoke solutions to fit their specific circumstances.

Find out if you qualify for a free consultation

If you need to tackle an unmanageable debt or bring a dispute to a swift and satisfactory resolution, then contact James Rosa Associates, ring 0845 6807217 or email enquiries@jamesrosa.co.uk and find out whether you qualify for one of our free consultations.

What happens if a creditor tries to declare you bankrupt?

By Mr Bankruptcy

17th September 2024

Filing for bankruptcy can be the best way to move forward if you face an unmanageable debt and creditors are breathing down your neck.

But what if a creditor makes the first move and applies to the courts to declare you bankrupt? Does it make a difference or put you at a greater disadvantage?

Voluntary bankruptcy

I’ve written about how the word ‘bankruptcy’ still conjures up fear and stigma in society. People see it as the worst outcome for someone in serious debt, but I argued that it’s not all bad.

For one thing, it’s usually a last resort if you have debts you really can’t repay. Also, becoming bankrupt has its pros as well as cons and was originally introduced to help both debtors and creditors. It’s a legal process that allows all parties to move on, and as a debt advisor I do recommend to some clients that voluntarily declaring themselves bankrupt can be the best way forward.

Involuntary bankruptcy

However, someone in serious debt can also find themselves subject to an involuntary bankruptcy petition by any one of their creditors if they are owed more than £5,000.

This is usually done when the creditor believes you can’t or won’t repay your debt and they’re no longer willing to explore alternative solutions.

The statutory demand is the first legal requirement before court proceedings can start. This is a formal warning that if you don’t repay a debt within 21 days then the creditor will apply for a Bankruptcy Order.

As a debtor, you can pay the debt if possible, or you can challenge it within 18 days of receipt if you can prove you don’t owe money, in which case the demand is ‘set aside’.

If it appears to the creditor that you have no reasonable prospect of repaying the debt, they can then apply to the courts for a petition of bankruptcy, which sets a hearing date. They do this for a number of reasons:

The petition must then be correctly served to you, usually in person in the first instance. You may decide not to contest the application, but if you don’t want to be declared bankrupt (which can entail winding up your business) you must challenge it at least 5 days before the bankruptcy hearing, providing evidence to support your case.

You don’t have to pay a court fee to oppose a bankruptcy petition, but you might have to pay costs if you aren’t successful. You may be entitled to legal aid, but this is getting rarer as budgets are cut.

At the hearing, the court has several options:

The important thing if you find yourself facing possible bankruptcy proceedings is not to ignore a statutory demand and seek professional advice as soon as possible from a qualified and Financial Conduct Authority registered bankruptcy consultant. It may be your best option not to oppose, but don’t allow yourself to be railroaded into this outcome if it’s not in your best interest.

Case study

As bankruptcy consultants, James Rosa Associates has handled all kinds of cases. For example, we recently helped a tradesman who was running a business with his son supplying and fitting bathrooms. The business’s debts were in his name and added up to over £424,000.

Our client originally planned to sell his home and to use the profits to negotiate full and final settlements with all his creditors. However, this is always going to be tricky because all creditors had to agree. When his house was valued at a lot less than originally thought, one of his creditors issued a statutory demand.

We worked with the creditor over several months to reach an amicable resolution but the creditor who had issued the statutory demand eventually lost patience and petitioned for our client’s bankruptcy.

Our client decided not to fight the petition, so he was made bankrupt. We were able to take him through the process, accompanying him to his interview with the Insolvency and advising throughout. The result that the debt against him was completely written off.

James Rosa Associates, bankruptcy consultants

It’s very important to choose a bankruptcy consultant you can trust and feel comfortable opening up to about your financial details. It pays to do some research by checking reviews first and asking for recommendations.

James Rosa Associates are experienced and knowledgeable in bankruptcy law. We pride ourselves on taking a supportive and non-judgemental approach and we work with you to understand your financial situation and help you reach the most suitable solution.

With a supportive and non-judgemental approach, we also offer a wide range of advice and professional services to business owners/directors, as well as individuals. Our services include:

We are authorised and regulated by the Financial Conduct Authority (FRN665061) to work with clients to produce bespoke solutions to fit their specific circumstances.

Find out if you qualify for a free consultation

If you need to tackle an unmanageable debt or bring a dispute to a swift and cost-effective resolution, you may qualify for our free consultation. Contact James Rosa Associates, ring 0845 6807217 or email enquiries@jamesrosa.co.uk to find out more.

What can I do if I get bad debt advice?

By Mr Bankruptcy

3rd September 2024

Facing unmanageable debt is a stressful situation to be in. Fortunately, there’s a whole host of support and advice to help you find a way through it, as well as a number of different path options you can take.

But it’s also true that not everyone’s circumstances will be the same, and it’s not always obvious to tell which advice is appropriate or which path might not work for you. If you receive advice you think is sub-optimal or ill-informed, what can you do about it?

No shortage of free advice

I’ve already blogged about the many sources of help available in the UK if you have a debt problem, which is a good thing. Feeling that you’re on the own and there’s no way out can only compound anxiety if you’re facing mounting debt that’s becoming unmanageable.

Sharing your debt concerns with a business partner, or family who rely on you, can be a great weight off your mind; I’ve written elsewhere about the dangers of debt to mental health concerns.

However, when it comes to seeking financial advice about management, you need to be more selective. People may be well-meaning but uninformed about debt or have unintended biases about what to do about it.

And if you do accept well-meaning advice from a family member, business partner or mate down the pub and it doesn’t work out, there’s not much you can do about it but try and find better advice.

Trusted, professional advice

Charities and Government bodies such as the Moneyhelper Service, the National Debtline or Citizens Advice are well known and qualified to give advice.

These are free but there’s also plenty of professional debt services if your circumstances require specific, technical financial services.

Either way, you should ensure that whoever you choose is qualified in the UK to give debt advice.

At James Rosa Associates, we are authorised and regulated by the Financial Conduct Authority to work with clients to produce solutions tailored to their specific circumstances.

You should look for independent advice where possible to be sure that it’s in your own best interest and not an off-the-shelf package of help that the advisor wants to sell.

I’d be suspicious if an advisor doesn’t sit down with you and take time to build a detailed picture of your financial situation and life circumstances before offering a solution.

Making a complaint

If you use a registered debt company and you think that you’ve received poor advice, there is someone you can complain to: the Financial Ombudsman Service (FOS).

The FOS has the authority and powers to sort out complaints between customers and financial services providers, including debt management companies. Before you contact them, though, you should have approached the company first with a complaint. But if it fails to deal with it to your satisfaction, you can call on the FOS to step in.

The Ombudsman’s service is based at Exchange Tower, London, E14 9SR. To initiate a complaint, they can be contacted on 0300 123 9 123, or 0800 023 4567 (8am to 8pm from Monday to Friday, and 9am to 1pm on Saturdays). The FOS can also be contacted via email on complaint.info@financial-ombudsman.org.uk.

How James Rosa Associates deals with a complaint

James Rosa associates is a specialist firm of debt advisors, and we pride ourselves on putting our clients’ needs first, with a supportive, non-judgemental and friendly approach as well as providing deep and specialist expertise.

We are authorised and regulated by the Financial Conduct Authority (FRN665061) to work with clients to produce bespoke solutions to fit their specific circumstances.

Our experts go to great lengths to find out all about our clients’ circumstances to offer the most accurate advice and most appropriate solutions for them, rather than just selling our own services.

However , no-one’s perfect, and our attitude towards a complaint from a client is that it’s an opportunity to improve how we do things.

We deal with all complaints diligently and impartially. A complaint can be made in writing to our company address or orally by telephone. We then invite you to discuss your concerns with a member of our staff which usually results in them being quickly resolved to everyone’s satisfaction.

However, if we can’t resolve the issue within three days to the client’s satisfaction we refer it to our Managing Director who personally handles the case. The MD acknowledges receipt by letter and will keep the complainant informed through the process until a final response is sent to you within eight weeks.

Where appropriate, we offer redress or remedial action but we also enclose a FOS leaflet with our final response so that if you still aren’t satisfied then you can contact the service directly.

Our clients range from individuals to business owners/directors who face unmanageable debt or are involved in a civil or commercial dispute requiring mediation, offering the following services:

Do you qualify for a free consultation?

If you want to deal with an unmanageable debt, or bring a dispute to a swift and cost-effective resolution, then visit James Rosa Associates, ring 0845 6807217 or email enquiries@jamesrosa.co.uk to find out whether you qualify for our free consultation service.

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