Consultation leads to more... consultation

Bankruptcy and winding up petitions threshold may rise

The Government has announced a consultation on raising the level of debt that is required for a bankruptcy petition to be lodged at court. Currently, there must be debts of at least £750 before a creditor can petition for bankruptcy. This limit has remained the same for bankruptcy and winding up petitions since the Insolvency Act was brought into force in 1987 so it does seem overdue for review: £750 in 1987 was a considerable sum in real terms, in comparison to today.

R3, the leading insolvency trade body, has suggested that the limit should be raised to £3,000 for both bankruptcy and winding up petitions. The impact of this would be to limit the ability of creditors to use the draconian threat of bankruptcy (or winding up for companies) to enforce relatively low levels of debt. There is anecdotal evidence to suggest that local authorities are increasingly using bankruptcy petitions to enforce unpaid Council Tax liabilities, typically of less than £2,000.

This move was first suggested by David Cameron during the election campaign in January 2010 (see my earlier blog post about this) and today's announcement follows a more wide-ranging consultation on consumer finance and debt issues. It is unfair to suggest that this is the only interesting announcement to come out of the consultation, but the reality is that the Government's response to the consultation was to say that generally things are going OK and they will just keep an eye on everything and, guess what, there is more consultation planned.

To me, this suggests that the coalition Government has bigger fish to fry at the moment and they are kicking consumer debt and personal finance topics into the long grass until public sector cutbacks, defence spending reveiws, the pullout from Afghanistan, Libyan air operations, the Euro zone debt crisis and the News International affair are under control. Or until the media decides that consumer debt and personal finance and finance is the hot topic.

Missed the tax deadline? It isn't the end of the world but act quickly

£90m penalties windfall for HMRC for late tax payments and tax returns

If you have missed the 31 January deadline for filing your Self Assessment Tax return, you are in good company. You are one of 9 million people who has yet to file their tax return for 2010-11. HM Revenue and Customs are looking forward to collecting around £90m in penalty fees from people who have filed their self assessment tax returns and/or paid the tax due after the 31 January deadline.

But don't be disheartened  - act quickly and you can avoid the situation getting any worse. The penalties charged by HMRC for late filed returns and late payments of tax rise as the delay increases, so if it's simply a question of an oversight, get it in ASAP and you'll save yourself some hard-earned cash.

And the good news is that if you have a 'reasonable excuse' for missing the deadline then you won't have to pay any penalty. But the bad news is that HMRC is unlikely to consider excuses relating to forgetfulness, the consumption of documents by pets, or delays due to overseas excursions, to be 'reasonable.' The rather short list of examples on their website includes documents lost through theft, fire or flood that can't be replaced in time, life-threatening illness, for example a heart attack that prevents you dealing with your tax affairs and the death of a partner shortly before the deadline.

If, however, the reason for the delay is that you know that you cannot afford to pay the tax due on last year's trading, then there is good news. By filing the tax return, even if the tax is unaffordable, you are then in a position to negotiate with HMRC for a 'time to pay' agreement. As long as your returns are filed up to date and you have a reasonable record of compliance with the tax authorities, you can put forward a repayment proposal. HMRC are generally willing to discuss sensible repayment plans, particularly if you approach them at the earliest opportunity.

If tax debts are part of a wider debt problem, it may be that a Voluntary Arrangement is the answer. These come in two flavours - Individual Voluntary Arrangments (IVAs) and Company Voluntary Arrangements (CVAs) depending on whether you trade through a limited company or are a sole trader. VAs of either variety can be a good way to solve cashflow problems and HMRC have a specialist department which deals with IVAs and CVAs, so they know what to look for in a well thought through proposal.

We have lots of experience in dealing with debt problems involving HMRC, so for expert, impartial and confidential advice, call us today on 01709 331300.

Plans to widen debt relief scheme

DRO eligibility to be amended

The Government today announced plans to make more people eligible for a debt relief scheme that allows individuals to write off unaffordable debt. The Debt Relief Order (DRO) was introduced in April 2009 and has been dubbed 'bankruptcy lite' - debts are written off in the same way as in bankruptcy, but the DRO is designed for people with very low value assets and little spare income after living expenses, where the full rigour of bankruptcy is unnecessarily cumbersome. Effectively, it is a way for over-indebted consumers to remove the burden of crippling debt that can never realistically be repaid. The idea is to draw a distinction between cases where debt is disputed or where the debtor may be able to repay but chooses not to, and cases where the debt is not in any doubt and nor is the fact that the debtor will never be able to repay it.

The main criteria for a DRO is debts of less than £15,000, surplus income after reasonable living expenses of less than £50 per month and total assets worth less than £300 (not including a car which may be worth up to £1,000). This makes a DRO available to a slender but statistically significant group of over-indebted individuals.

The plans unveiled today are to exempt pension plans from the asset cap. Previously, having a pension would mean that a debtor would fail the low asset requirement (assuming that the pension fund is worth more than £300.) As almost all pension policies are 'locked away' for use in retirement and aren't available for paying debts, it seems fair to exempt pensions from the equation. In addition, the Government is firmly entrenched in a policy of encouraging everyone to save for their retirement. It therefore makes sense to amend the criteria in a way which will have little effect on the likelihood of creditors recovering their debts.

More people than ever are becoming insolvent

Insolvency statistics give cause for concern

Official figures released by the Government’s Insolvency Service today show a 5% increase in the number of people getting into serious financial difficulties in the last three months. Although the number of bankruptcies has dropped by nearly 20% in the past year, the overall number of people becoming insolvent has increased as greater use is made of alternative ways of tackling high debt levels.

It seems clear that many people are struggling to cope with the effects of the downturn and record numbers are becoming insolvent. Job losses and cuts in overtime payments are making life difficult for households. This means that debt that was previously affordable can become a real problem. And as public sector spending cuts start to kick in, the situation is likely to get even worse.

In the first six months of 2010, over 70,000 people have become insolvent – the equivalent of a town the size of Barnsley or Chesterfield.

The cost of becoming bankrupt has increased in recent months and this may have encouraged people to look at alternatives. In particular, the new Debt Relief Order has become more popular since it was introduced last year. The good news is that there is help available – but I would recommend that anyone in difficulties should take advice from a reputable organisation. Beware of unsolicited calls offering advice that sounds too good to be true.

To find out what all your options are, call me today on 01709 331300.

Getting away from it all can lead to problems back home

Millions get into debt for a holiday

The insolvency trade body R3 released figures today showing that over 2 million holidaymakers have got into debt to pay for holidays this year and will spend an average of seven months paying it back.

The research, carried out in the middle of July by pollsters GfK NOP reveals that 2,329,500 people had to borrow on average £1,130 to pay for a summer getaway.

Now I like a holiday as much as the next insolvency practitioner and to many, a spend of just over £1,000 on a big holiday may not be too shocking. In fact, I wonder if the ‘real’ figure for holiday spending is much more, but the individuals surveyed didn’t have an accurate idea of exactly how much they would spend: the flights and hotel may be around £1,000 but how much more unplanned spending goes on food and booze, sightseeing trips and souvenirs?

In my experience, the problem often tends to be that the holiday spending comes on top of other unsecured debts that have mounted up through the year. This kind of spending can be the final straw for many people, who return home to credit card bills and loan repayments that they simply can’t afford.

The good news is, no matter how debts have been incurred, there is help available. If you’ve returned from your summer holidays and found that you’ve got more than a few photos and a bottle of the local firewater to remind you of your trip, give me or one of my colleagues a call on 01709 331300. We can help.

'Corporate undertakers' become 'company doctors'

Research shows that the insolvency profession is good for the economy

It's great to have some good news about the economy and about the insolvency profession. Research carried out by ComRes, a leading polling and research agency, shows that the UK’s insolvency industry helped to save nearly two million jobs in companies going through insolvency and rescued around six thousand (5,851) businesses last year. In addition, the UK’s Insolvency Practitioners who work on corporate insolvencies spend nearly a quarter of their time on preventing insolvencies rather than dealing with companies that have already gone to the wall.

Hopefully this will go some way towards changing people's opinions of what insolvency practitioners like me actually do. Before I joined the profession, my own experience of dealing with an insolvency practitioner had not been entirely positive. I often think back to that time and as a result I am determined to be the type of practitioner who is focussed on delivering the right advice at the right time, concentrating on preserving businesses and jobs, rescuing companies and keeping people out of bankruptcy where possible and practical.

My goal is to give balanced, impartial advice on all the options, to allow people to make their own informed decision. Business owners know far more about their business than I ever will, so my job is to offer the various tools in my insolvency 'toolbox' and help them understand how they can help deal with debt and insolvency problems in their individual circumstances.

But I can't work miracles. I can't turn back the clock and I can't wave a magic wand. The sooner that I am asked to help, the more options there will be and the more chance we will have in turning things around.

So if you've been worrying about debt but you've been concerned about asking advice from a 'corporate undertaker', why not call me, Dr Debt, the company doctor. My number is 01709 331300 and it costs nothing to have a chat about your options.

Ostrich mentality to debt is still a big problem

Sticking your head in the sand will not help deal with debt problems

Research published today shows that many people are too ashamed to ask for help with their debt problems, preferring to ignore them in the hope that they will go away. A poll carried out for 'R3', the insolvency profession's leading association (of which I am a member) shows that 21% of people with debt problems haven't contacted anyone for help because "It's easier not thinking about it" whilst 14% are worried what people will think if they seek help about their debts. In addition, 30% of people with money problems haven't even told their partner or family about their situation.

Unfortunately I see this situation all the time. People come to me when the situation is really desperate, where someone has put off taking advice sooner because they were worried about what people would think or what their partner or family might say. (Sometimes people are even worried about what I would think - trust me, I've seen it all, nothing shocks me any more!)

The old saying 'better late than never' is true and there are things that can be done to ease the situation even when things seem bleak. But the sooner that someone takes advice about debt problems, there will be more options and the options themselves will be more palatable and more attractive to creditors.

So if you are worried about your debts, whether they are business or personal, why not give me a call on 01709 331300. You can meet with me free of charge and I'll help you to find out what all your options are. It's confidential and I promise that I won't judge or be shocked: I'll just try to help.

David Cameron announces proposed change to 'insolvency threshold'

Conservatives indicate willingness to tinker with insolvency rules

On The Andrew Marr Show on BBC1 yesterday, Conservative leader David Cameron announced plans to boost small busineses as part of a package of measures to stimulate jobs, wealth and enterprise and to allow the country to "trade its way out of recession." As well as reducing the amount of time it takes to set up a new business and encouraging social landlords to permit tenants to operate a business from their homes, Cameron announced that a Conservative Government would raise the "insolvency threshold" to £2,000 from the current level of £750. He stated that more small businesses had gone "bankrupt" in this recession than previous ones and that "a number have been pushed there by the government itself."

At present, a creditor can petition for an individual's bankruptcy if they are owed more than £750, whilst a company can be wound up following a statutory demand for a debt in excess of £750. But a company can also be wound up by the court if a creditor obtains a judgment for any amount and is then unable to enforce it - for instance, if bailiffs report that there are no valuable assets to remove. So increasing the threshold for companies won't necessarily make it more difficult for a creditor to wind up a struggling company, but it will give some protection for sole traders, who make up the majority of small businesses in the UK.

The threshold of £750 hasn't changed since the Insolvency Act gained Royal Assent in 1986 so it seems reasonable to revisit it. In the 24 years since the legislation was passed, inflation alone would mean that £750 would be more like £1,700 in today's money. I suspect that the threshold hasn't been revisited sooner because the legislation was poorly drafted: the threshold relating to bankruptcy can be changed by statutory instrument but there is no corresponding provision for company winding-up, making it all a bit messy.

But there is another issue: by raising the insolvency threshold, will this lead to more businesses experiencing further problems of non-payment by customers? Would this send out the wrong message to businesses, encouraging them to delay payment? I hope not.

How to avoid insolvency in the first place: #1

A well-organised business is a successful business

In my years as an Insolvency Practitioner, I’ve found that two things always seem to go hand in hand. These two things are disorganised businesses and insolvency.

We all know that there is a long list of things that we’d all like to get round to doing, but we just haven’t got the time. Some things fit into the category of “nice to do but not essential.” So it would be nice to buy a new plant for the office, or replace the broken clock that is always 15 minutes slow. But these things don’t really damage a business. There’s no need to lose any sleep over them.

But some things are critical and if they get forgotten, the wheels will start to fall off and everything will end in tears. Whether it’s taxing the company van, making sure that invoices are paid on time and decent bookkeeping to make sure that everything is properly accounted for, some things just have to be done. The problem is that it’s easy to concentrate on doing the business, rather than running it.

Happily for smaller businesses, help is at hand. There’s no need to take on extra members of staff as there are a number of excellent virtual assistants, part-time bookkeepers and office support professionals, who can make your life a lot easier. They can spend as much or as little time as necessary, either working in your office or theirs, making sure that all the little (but crucial) things get done. So whether it’s answering the phone in a professional manner, organising mailshots to potential customers or day-to-day bookkeeping, there are plenty of people to turn to.

Try a web search for virtual assistants in your area - or, if you prefer, I can recommend some for you to consider.

http://www.moorheadsavage.co.uk/