Pensioners, small traders, owners of buy-to-lets and divorcees are all expected to loom large in this year's booming insolvency statistics. They are predicted to help make 2010 a record year for insolvencies. About 150,000 individuals will go bankrupt or opt for another official insolvency measure, up 12 per cent on 2009, according to the accountancy firm RSM Tenon.
"It's everyday people who are making themselves bankrupt now," says Bev Budsworth, insolvency practitioner at Old Trafford-based the Debt Advisor.
"It's cutting across the whole of society," says Charles Turner, head of personal insolvency at the accountant Vantis. "We expect to see trouble right across the spectrum," he says of 2010 and 2011.
Those who know little about the legal issues involved in debt may think that it is always the same kind of rather reckless person who gets into trouble each year. But, in fact, different kinds of people go under at different stages of the economic cycle. This phase is particularly painful because individuals who have held on for two difficult years are finally having to throw in the towel.
"People are really struggling with debt fatigue," says Budsworth. "It's worn them down so much that it's almost to protect their health and sanity."
For instance, in the last three bankruptcy cases she handled, two of the three men involved were self-employed and had reached a state of exhaustion. Two of the three also ended up getting up divorced. Speaking of one of the three, who had been forced to give substantial personal guarantees (which were then called in) on his business loans, she says: "His wife decided she no longer loved him. He moved into rented accommodation ... It all knocked the stuffing out of him."
At the start of the downturn, the first individuals to be hit were those in the construction industry. The wave then spread out to others dependent on the property sector, such as those working in estate agencies. Also highly vulnerable to any kind of economic volatility were the plainly reckless with numerous debts who could no longer find new credit card providers to accept their transferred balances. Now, however, different trends are emerging.
Charles Turner of Vantis is a trustee in bankruptcy to three accountants and is seeing "a lot of professionals" among his clients. These include a judge, an MP, a member of the House of Lords and some solicitors' practices.
Mark Sands, head of bankruptcy at RSM Tenon, has seen more people go for IVAs (Individual Voluntary Arrangements, a halfway house alternative to bankruptcy) in the last six months because they have been subject to a pay freeze or pay cut. "If you are carrying £30,000 on your credit cards and you suddenly lose your overtime that is a big gap."
They will rarely give up at the first hint of trouble, he says, but if they then suffer another setback, such as having to go on a four-day week or relationship breakdown, then they start calling insolvency helplines.
Last year 134,000 people went bankrupt, started an IVA or opted for a Debt Relief Order (see below). Sands predicts that we will reach 150,000 this year and probably stay at this annual level for another couple of years.
Sands' statistics and predictions are famous in the insolvency industry, and he is now detecting another worrying trend: "Pensioners are the fastest-growing group in personal insolvency." Once a negligible part of the picture, the 60-plus age group represented 7.7 per cent (one in 12) of personal insolvencies in 2009.
"The people who are getting to retirement now are the first to have got there with consumer debts," he says.
The Consumer Credit Counselling Service (CCCS) is seeing so many pensioners that it is considering starting a special unit for them. Eastbourne CCCS recently advised an 85-year-old who wanted to go bankrupt (although she did not go through with it), and only a fortnight ago were helping an 80-year-old who, bizarrely, had been given a £10,000 25-year loan by a bank.
Nevertheless, while a handful of flamboyant octogenarians may steal headlines if they go bankrupt, there will be many more pensioners simply struggling because they cannot make ends meet on their pensions. Like everyone else, if they have an asset to their name, such as their house, they are potentially worth making bankrupt as their creditors can recover some money from the process. Or the creditor may decide to put a "charge" against the property, which means that they get a part of the proceeds when the house is sold. People with no assets, however, are more likely to opt for the new "Debt Relief Orders", the cheap and cheerful alternative to bankruptcy, available to people on very low incomes.
Another group of people that debt advisers are seeing more frequently now are those with buy-to-lets that they cannot find tenants for and cannot sell without incurring a big loss. Maggie Kirkpatrick of Eastbourne CCCS says she has seen an increase in this kind of complicated debt problem. "The situation could change for them tomorrow if they get a tenant," she says. "And all the time they are hoping that property prices will go up." In the most involved case she has handled, the owner had six buy-to-lets.
"You can't expect people in these situations to make decisions overnight because their decisions affect a lot of people." There are often many ways of reducing the cash crisis in these cases, such as taking a child out of private school or asking a relative to help out in a business. But these steps often require sacrifices to be made by other people and so require a lot of soul-searching.
Grant Bovey's bankruptcy earlier this month may not have attracted that much sympathy as he can still live in some style under the wing of his wife, the television presenter Anthea Turner. But, in some ways, he is typical of people going bankrupt now as he had made his fortune in buy-to-let and had reached a state of extreme weariness after two very difficult years.
The options open to people with debts are also in a state of flux. Debt Relief Orders (DROs) came in only last April, cost only £90 (compared to the £600 that bankruptcy will cost from next month), but apply only to those with under £15,000 in debts and under £300 in assets.
"They are brilliant," says Maggie Kirkpatrick, explaining how people can be formally freed from their debts rather than having to make small, regular but token payments to their creditors.
However, pension funds are counted as assets for DROs, so people with tiny pension funds, even if they cannot receive the pension for many years, are barred from DROs. Citizens Advice (CA) is now lobbying the Government to change this rule, and the Government seems to be listening.
In one case that CA has dealt with a 45-year-old ex-soldier with debts of £8,000 was prohibited from applying for a DRO because of the pension fund. Even though he would not get the pension for another 20 years, he was excluded from the DRO route and had to consider the far more elaborate and expensive alternative of bankruptcy.
Bankruptcy itself, however, could also get cheaper as the Government is consulting on a proposals through which people could apply for it online.
In 2009, Citizens Advice Bureaux handled 2.3 million debt problems, a 24 per cent rise on the year before.
Sue Edwards, head of consumer policy at CA, knows that this year could be very tricky, too. "If the interest rate goes up we will see a lot more people. Lots of people are just about keeping their head above water."
Bankruptcy: Despair of the adviser
Anthony (not his real name) has been advising on debt problems in a Yorkshire advice centre over the course of the downturn:
"The debt problems are percolating down. We are now seeing the small people who are running shops and small enterprises. In the good times, they spent money and were foolishly encouraged by the banks, and now the banks are calling the loans in.
"All it needs if you are a kitchen fitter is for two or three clients to go down and you are in serious trouble. So, for instance, you have good reason to believe that a client is good for the money, then his marriage breaks up, he disappears and she's got no money. Debt and divorce go together. The kitchen fitter ends up with a debt of £3,000 or £4,000 on top of his other debts, and finally he can't cope any more.
"These are small, prudent businesspeople who are trying to make their way and live the dream. They haven't been spending money rashly. These are the people who are going bankrupt, not the ones who have maxed out on credit cards. What you are hearing now is the despair of the adviser.
"Your grand economists can talk about Chinese shipping contracts but these are people on the ground who are being ruined for a few pennies, and they can't see anything getting better.
"When they go down, they are not angry. They are very upset and very frightened. There is a sort of meekness and helplessness before the cataclysm.
"The next group that are going to get into trouble are pensioners. With inflation, they are going to find that their money buys less. They are now selling off what they have got. And then there are prudent people who bought a house to let out for their pension-planning. The last tenants left it in a disgusting state and it will cost £100s or £1,000s to clean and repair. But, because they have this asset, it is worthwhile for their creditors to make them bankrupt.
"Since they are prudent people, they come from prudent families, so a lot of these people are being carried now by their families. But if this goes on much longer they won't be able to carry them."