What does the future hold?
9th April 2020
As I am writing this, we find ourselves in the middle of a lockdown due to the COVID-19 pandemic. Needless to say, these are unprecedented times and nobody can be certain what the future holds.
A lot of people have said to me that I must be really busy at the moment given I specialise in personal debt advice and helping people through bankruptcy. Strangely enough, actually quite the opposite is currently true (at least in the immediate term). There are a number of interesting things to consider here:
- Creditors have had their hands tied behind their back somewhat with courts adjourning petitions (e.g. winding-up, bankruptcy, evictions etc) for 12 weeks. This would mean a significant build up of cases meaning it would likely be months before a creditor could get a debtor into court. There was a Practice Direction issued this week to mitigate this by having hearings done by telephone etc, but only time will tell if that alleviates pressure from the backlog.
- The Financial Conduct Authority (FCA) issued draft guidance on the 2nd April proposing to make amendments to CONC 6.7 by encouraging the provision of COVID-19 specific forbearance measures. Anecdotal evidence would also suggest that most lenders are keen to be seen to “do the right thing” no doubt in case they need a bailout at some point in the future themselves.
- With 3-month mortgage repayment holidays now being taken up, those who have cash are reluctant to let it go. Whilst this may help in the short term, the medium to long term impact right across the supply chain cannot be underestimated as individuals and businesses embrace the idea of not paying anyone.
- Everyone thinks the government will ride to the rescue. Given the fact that businesses are likely to have to wait until June for payment for the workers that have now been furloughed, how many businesses have those kind of cash reserves? Others are of the opinion that they only need to make a call and they’ll get a £10k cash grant. Even more worrying is the new Coronavirus Business interruption Loan Scheme (CIBILS) which sounds fantastic, but many lenders are already indicating it will be 3 months before they have a chance to look at new applications.
So, what happens next?
I think it is likely that in 45-60 days, large numbers of businesses and individuals are going to be running out of cash (if they haven’t already done so) and in 60-90 days, we will see a spike in formal insolvencies (both personal and corporate). By the time this lockdown is over, I believe that rather finding ourselves in recession, we will be in a global depression whose effects may last the best part of 10 years. Given that most governments and central banks have used their arsenal of tools to combat the last economic crash (QE, interest rate cuts etc), there will not really be anything left in the locker to deal with the economic aftermath of this pandemic.
What can we do now?
Now is the time to really take a look at your financial situation whilst you are not under creditor pressure. The problems are not going to go away because of the pandemic, but the can has just been kicked a few weeks down the road. Do your research and have a plan.
As an example, I was speaking to a potential client who sadly has found personal bankruptcy is inevitable. They were considering when the best time to start the process was and I advised them that now is the time. As you are kept in bankruptcy for 12 months, why not “serve” some of that time during the lockdown when you can’t do anything else anyway? By the time things start getting back to normal, you will be almost through the process.
Finally and in the immortal words of Douglas Adams, DON’T PANIC !
Please be advised that all views expressed in these posts are those of the author and not of James Rosa Associates ltd.