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Change Insolvency Act so that bankruptcy does not mean loss of home

Comment 8th August 2010

The Insolvency Act 1986 should be changed so that unsecured debt cannot be turned into secured debt on a person's home in the event of a Statutory Demand being served by debt collection agencies on unsecured debt in arrears.   

This is considered a loophole in the Insolvency Act, and is exploited by debt collection agencies who determine which debtors are homeowners and then threaten them with bankruptcy through the use of issuing Statutory Demands.     This in effect enables the debt collection agency to turn the unsecured debt they are seeking to collect into a secured debt on the debtors home.

Why does this matter?

We have a terrible problem with debt in Western society.   We are forced into debt as young adults by the need to buy high priced homes, to go to university, to drive if we don't live in cities, and encouraged to further debt by wanting to live modern lives.    It is hard to balance sometimes and whilst some are reckless others fall into this trap all too easily.

Individuals and families who have overextended or find themselves unable to pay on their original repayment schedules need help and patience by their lenders to pull themselves out of the problem and return to fiscal health.  

Whilst it is true that some debt problems are the result of greed and incompetence on the part of the debtor, many are not.  

When debtors find themselves in this horrible and dark situation, they need to make arrangements with their lenders to alter their repayments.     Many lenders are very patient and grant alternative payment schedules, and do not seek to financially ruin their customers.

Unfortunately many lenders are not.    In many cases, instead of allowing their customers a more lenient repayment schedule,  they sell the debt (in some cases for pennies on the pound) to debt collection businesses who use a variety of techniques to 'encourage' higher repayments from the debtor.     These businesses contribute nothing  to society and make terrific profits which are under-taxed at the expense and misery and ruin of people who are unfortunate enough to become their clients.

Most debt collection agencies as a whole are often in breach of good collection guidelines.  It is common practice for debt collection agencies to use techniques that are considered coersive and constitute harrassment by the Office of Fair Trading and Trading Standards.    

Many debtors get into trouble with high levels of  unsecured debt but some debt collection agencies have used what is considered a loophole in the Insolvency Act to force home owners into bankruptcy, effectively securing the unsecured debt on their homes through use of the Statutory Demand.      They serve Statutory Demands under the Insolvency Act to these debtors to force them to pay what they cannot afford to pay or be forced into bankruptcy in order to protect their homes.

No one disputes that debts need to be repaid.   However forcing debtors out of their homes places a further burden on society and can result in the ruin of the debtor who for a bit of leniency could have pulled themselves out of their situation.  Debt has caused people to commit murder and suicide and other crimes.   The bankrupt would be forced onto Council Housing and the benefit system as their poor credit rating would render them unable to buy another home or to rent anywhere decent.   It could ruin their reputations and make them unemployable in several industries.    It is immoral and cruel in a civilised society that we profess to be.

I will be submitting another two ideas that I hope will be considered

1.  I propose that debt collection businesses are levied with a heavy windfall tax.   Their profits are obscene and I will be writing to Vince Cable directly with this one, its a no brainer and an easy win for more income for the Treasury.

2. Restrict sales of consumer debts by lenders so that no lender can sell a debt at discount to another party without first passing on that discount to the debtor with a generous time period.

 

 


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