Bankruptcy 'It's an easy way out. I can start afresh'

Exotic holidays, designer clothes and the latest gadgets can be yours at the flash of a credit card. But what do you do when the final demands roll in? A generation of thirtysomethings has found the solution. Julia Stuart meets the young, free - and bankrupt

Deep within the Royal Courts of Justice on the Strand, through ancient corridors where wigged gentlemen strut, their black cloaks flying like sails, is a modern building with sliding glass doors. A procession of young people, each clutching a bundle of papers, pass through them and up into a room that resembles a post office. They stand uneasily as they wait to be served at one of six counters. At the front of one queue, a young man in jeans and a beanie hat repeatedly calls the clerk "sir". By the end of the day all his troubles may well be over: he's declaring himself bankrupt and, within a year, all his debts could be wiped clean.

Deep within the Royal Courts of Justice on the Strand, through ancient corridors where wigged gentlemen strut, their black cloaks flying like sails, is a modern building with sliding glass doors. A procession of young people, each clutching a bundle of papers, pass through them and up into a room that resembles a post office. They stand uneasily as they wait to be served at one of six counters. At the front of one queue, a young man in jeans and a beanie hat repeatedly calls the clerk "sir". By the end of the day all his troubles may well be over: he's declaring himself bankrupt and, within a year, all his debts could be wiped clean.

Bankruptcy is, it appears, the new "get of jail free" card. As credit card debt in Britain soars, thousands of people are declaring themselves insolvent. More than half of new bankrupts in this country are under 30 years old. In the final three months of 2004, a record 13,000 people were declared insolvent, 35 per cent more than in the same period in 2003. And it is easy to see why. Before last year it took between two and three years to be discharged from bankruptcy. But recent changes to the Enterprise Act have cut this to a maximum of one year. The amendments were designed to make it easier for companies to go bankrupt, enabling entrepreneurs to quickly set up again after a failure. But while the number of business bankruptcies has fallen, more individuals are declaring themselves insolvent than ever before.

Many people are acting on guidance from debt agencies or the Citizens Advice Bureau, who now see bankruptcy as a sensible option for some. Recently, a business venture belonging to Lady Victoria Hervey, and the former East 17 singer Brian Harvey have been declared bankrupt. Under the new laws, even local councillors are able to keep their positions if they are declared insolvent.

"Going bankrupt is seen as a way out for many people," says Helen Saxon, a spokesperson for the Consumer Credit Counselling Service, a charity that provides advice for people in financial difficulty. "It could be the best course of action for those with no assets and lots of debt that would take a long time to pay off. Many people say it's a weight off their mind, and it's perceived as being more socially acceptable than it once was. The reduced term means that you feel an outcast for a shorter time."

The process is astonishingly simple. Depending on where they live, people present their insolvency petitions at either a county court or at the Bankruptcy and Companies Court, part of the High Court in London. Around 12 people a day declare themselves insolvent here, and most of the petitioners waiting to be served today have already completed their statement of affairs - or debtor's petition - a stack of papers that details their assets, creditors, income, outgoings and causes of bankruptcy. They quietly approach the counter, where they are asked to go to another building to pay their costs - £310 to cover the Official Receiver's administration fee, a court charge of £150 and an affirmation/swearing fee of £7. One girl in her 20s, with highlighted hair and precisely applied make-up, is accompanied by her mother, who looks just as glamorous in her fur-trimmed coat and heels. The mother says she was most surprised that she was not allowed to pay the fees with her credit card, and complains that she had to nip out to the cashpoint for the money.

More of the windows open, each of which has the word "Bankruptcy" above it. A clerk checks another young man's forms and asks him to swear an affidavit. He does so on the Koran. Each petitioner must have their paperwork checked by a clerk before noon. One, who has clearly taken a long time to decide that bankruptcy is the right thing for him, presents his forms, only to be told that they are now out of date. He is given a new batch and repeatedly glances at the clock as he tries to make the deadline. Each petitioner is told to return to the chambers at 2pm as they troop off for lunch.

Jack Curzon, 32, is turned out in black trousers, a black jacket and designer spectacles, and could easily be mistaken for a solicitor. He is, in fact, in debt to the tune of £24,000 and has just lodged his petition. He decided to dress smartly, he says, as a sign of respect to the court. All of his clothes (from Next and Marks & Spencer), his spectacles and the caps on his teeth have been bought on credit cards. He looks slightly bemused and can't quite believe how easy the process has been so far.

The son of an actor and dental assistant, Jack, who lives in a grubby rented room in Holloway, North London, first got into debt when he took out an £8,000 bank loan to cover his £5,000-a-year tuition fees at drama school. He had planned to repay the money when he got work after college, but the debt escalated and his wages from a part-time job as a cycle courier weren't enough.

"Every so often I spent a couple of hundred pounds I didn't have," he says. "I might have bought a new pair of trousers, or Christmas presents for my family. Before I had a credit card I just spent until my bank account was empty. But when I got a credit card, I spent money I didn't have just because the temptation was there."

Unable to pay his college fees - he already had two or three years' worth on his credit cards - he left the course early and started to look for acting work. But it didn't come. "Instead of paying the minimum payment on my credit card, I just transferred the balance to another card," he says. "My debt level was growing. By then I was using my credit card to buy groceries."

In 2002, he got a job as an administrator with a salary of £12,000, but by then his debt had reached £15,000. He asked his bank for a consolidation loan, which was refused. Instead, the bank offered him another credit card - his fourth. "Then I started spending money on that card as well. As I reached my limit they upped it again and again and again, but I wasn't earning any more."

Owing £20,000 on four credit cards, £2,500 from a loan and with a £1,500 overdraft, Jack finally decided to get his act together. "I started thinking about my future, about having a family and a home, and knowing that with these debts it would never be possible," he says. He spoke to an adviser at the Consumer Credit Counselling Service. "Thy said I had two choices: either spend 10 years paying it back, and by then I'd be in my 40s, or go bankrupt for a year."

He chose bankruptcy. "It's an easy way out. Rather than having a weight around my neck I've given myself a chance to start afresh and learn a lesson. It is shameful and it's affected my self-esteem. It's weak to get caught up in debt - it's breaking a contract if you borrow and don't pay the money back. I also think it's morally wrong of me to declare myself bankrupt, even though it's a legal procedure."

It is 2.30pm. The bankruptcy orders have now been drawn up and given a court seal. The debtors gather in the Bankruptcy Chambers, a large room with a counter at each end and two tables in the middle. A clerk tells each debtor: "You are now officially made bankrupt, here are your papers." This is often followed by the sound of sobbing or sighs of relief, each person safe in the knowledge that bailiffs can no longer come and take their furniture. Their affairs will now be handled by the Official Receiver.

"The case of Jack Curzon," announces a clerk. Jack steps forward and is told that his petition has been processed. The Official Receiver will now decide whether to seek an income payment order against him, which will run for three years and will compel him to pay a proportion of his wages towards his debts. He will also sell or dispose of any of Jack's assets - it's a criminal offence not to declare all your possessions. From this evening Jack's bank account, containing £500, will be frozen.

"Bankruptcy still carries severe penalties. It's not an easy option," warns Helen Saxon. "Your credit record carries a bankruptcy for six years after discharge and you'll find it very expensive to get credit, including a mortgage. Everything that you have or get during your year of bankruptcy that you don't need to live on is in the hands of the courts or their appointed insolvency practitioner and will be used to pay off your creditors. If you are salaried, the Official Receiver will decide on the amount you need to live, and anything above that will go to pay off your creditors. If you were left a legacy during this time that could be taken as well."

The Official Receiver or insolvency practitioner who has been appointed trustee can also sell a bankrupt's home if it is the only way to release money to their creditors. But if a spouse or any children are living there, the sale may be put off until the end of the bankruptcy term to give time for other arrangements to be made.

Jack heads off on foot to the Official Receiver's office in Bloomsbury. "It's a bit worrying because I'm now in the hands of the courts. I can't get loans now though, so I can't make my situation worse. It all seems a bit too easy."

GOING FOR BROKE

* 12,192 companies went into liquidation in England and Wales in 2004

* 35,898 individuals in England and Wales were declared bankrupt last year

* In the fourth quarter of 2004 alone, the Department of Trade and Industry reported 9,803 individual bankruptcies, an increase of 28.9 per cent on the same period a year earlier

* According to the Department for Education and Skills, 899 students declared themselves bankrupt in 2003, a figure three times greater than in 2001 and nine times greater than in 1998

* To declare yourself bankrupt costs £457 to cover the administration and court fees

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