Sam Dunn: No easy escape for the bankrupt baby boomers

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The Independent Online

The profile of a bankrupt used to be that of a shattered individual who had fought and lost a battle with a drastic change in personal circumstances - brought about by a failed business, or perhaps by redundancy or divorce.

The profile of a bankrupt used to be that of a shattered individual who had fought and lost a battle with a drastic change in personal circumstances - brought about by a failed business, or perhaps by redundancy or divorce.

But today, as an advertising creative might say, bankruptcy is rebranding itself.

A report into personal insolvency in England and Wales, due this week, is set to mirror a trend already seen in Scotland, showing that bankruptcy no longer carries the same stigma as in the past.

Research by the accountancy firm PKF into debt levels in Scotland has revealed a sharp rise in the percentage of personal insolvents under the age of 30 - nudging 60 per cent of all bankrupts in a batch of recent cases.

In some cases, individual debts stood as high as £60,000 but it wasn't the figures that really caught the eye. Rather, it was the nature of the unfortunates' indebtedness.

Huge bills for chi-chi furniture, clothes, shoes and the other accoutrements of modern life, racked up on credit cards, were principally to blame, according to Bryan Jackson, author of the report.

"Lifestyle expectations have soared," he warns. "Regardless of whether they can afford it, young people are buying up anything new that comes on the market - and are funding their purchases on credit."

His comments reflect a cultural shift that threatens to redefine our perception of debt.

Bankruptcy legislation in England and Wales, designed to give entrepreneurs a second chance, has become for consumers a light at the end of the debt tunnel that is permanently switched on.

Formerly, bankrupts were left out in the cold for three years, but these days you can be discharged after one year - or less, if the courts look favourably upon you.

Many believe that such an escape route is leading us into a Babylon of debt, and the figures certainly point that way. Credit card borrowing in the UK is approaching £60bn, while our overall personal debt level has broken through the £1 trillion barrier.

The danger is that these two figures are now so large they have become meaningless and fail to resonate with credit-card users. With the gush of deals on offer from lenders eager to pick up customers, market share and profits continuing unabated, it's no surprise people take on more debt than they can really afford.

Banks and lenders have regularly been excoriated by MPs for their failure to check customers' financial histories rigorously before offering credit, yet they have still failed to take effective action. And the real concern is that, like policemen, those drowning in debt are getting younger.

Lenders love to trot out the line about "lending responsibly" but the sums they rake in from penalty fees and fines suggest that irresponsible customers are actually better for their bottom line.

We're now at a stage where young adults willingly turn to the courts to set themselves free from debt. While we can't know if everybody who applies for bankruptcy has worked through the alternatives, it's to be hoped that their decision was not arrived at lightly.

Declaring yourself bankrupt is tantamount to waving the white flag over your personal finances. It's nothing less than surrender to a court, where the official receiver is pretty much free to do as he pleases with any assets - including your home - and marshal a chunk of your monthly take-home pay into repayment plans. Your credit record is stained for six years, making it hard to get a mortgage or credit. If you do, expect to pay through the nose.

To be fair, bankruptcy can offer a lifeline - particularly if you have no assets - but it's one you should grab only when there is absolutely nothing else is available.

s.dunn@independent.co.uk

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