press release
Government measure too little too late for UK 'spendaholics'
24 January 2008
Government measures to help consumers manage their growing
mountain of debt have come too little too late according to
insolvency experts at leading Midlands law firm Browne
Jacobson.
Findings by price comparison website uSwitch this week revealed
that as many as five million people, or one in 10 adults, spend
more than they earn on a monthly basis. A further one in five
consumers have no spare money left at the end of the month and half
of those living beyond their means rely on overdrafts and credit
cards to plug the gap.
The Government recently introduced plans that would allow
consumers with debts to take out a court order enabling them to
have a break from making repayments.
Under the radical new proposals consumers who fall into
financial difficulties through a change of circumstance, such as
losing their job or divorce, will be able to stop making payments
on personal loans, credit cards and other debts for up to a year by
applying for an Enforcement Restriction Order (ERO). In the
majority of cases, interest on the debts would continue to accrue
during an ERO but borrowers will not be charged penalty charges or
other fees while the order is in force.
Payments to creditors will cease and creditors will be barred
from taking enforcement action without the permission of the Court.
Not all debts would be included in an ERO. Child maintenance
payments, student loan payments and mortgage payments will be
excluded. Utility bills, rent arrears and council tax may also be
excluded. There will be no upper limit on the debts that could be
included in an ERO but the debtor must be able to show that they
can continue making payments once the ERO comes to an end.
Vicki Dunstall, an expert in insolvency at Browne Jacobson, said
:
“These latest findings come amidst widespread concerns that
higher debts may push more people into insolvency this year. For
many people the proposed changes will be too little too late. We
have had constant warnings about the mounting debt problem for
years but it appears that both consumers and the government have
done little to curb spending habits.
“With the credit crunch now in its ascendancy and billions being
wiped off the price of stock markets around the world there will be
many people saying we told you so.
“Government plans to give those in debt a temporary reprieve
will herald one of the most profound developments in UK bankruptcy
and insolvency legislation in recent years. EROs will provide an
alternative to bankruptcy and individual voluntary arrangements but
will not be available until 2010.
“The other big loser under the government’s plans will be the
payment protection market, a sector that is already under
investigation by the Competition Commission for its low claims
ratios and high commission rates.
“The ERO is just one of a number of avenues and we strongly
advise anyone facing financial difficulty to seek professional
advice.”
The ERO plans are currently out to consultation until 16 April
2008.
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