Bryan Jackson : Tolerance wearing thin for those who seek out extra debt

THE latest figures showing continuing high levels of personal debt in Scotland obscured a significant development that suggests the authorities are getting tougher on those who accumulate enormous debts.

The Accountant in Bankruptcy (AiB) recently stated that the number of bankruptcy restriction orders (BROs) had doubled from six for the whole of 2009 to 12 for the year to date. These orders are given to individuals believed to have deliberately accumulated debt.

An example given is of an individual who systematically visited a number of mobile phone shops, taking out five contracts with different companies within four days, but had no intention of making any payments towards them, resulting in an increased debt in excess of 4,000.

It is clear the system is getting wise to the practices of some unscrupulous individuals who realise that they will never clear their debts so deliberately increase them prior to sequestrating themselves. While such individuals remain a tiny part of the whole personal insolvency process, this increase in BROs is perhaps indicative of a trend of less tolerance toward severe indebtedness.

Given the level of debt that some individuals accumulate, is it any wonder that there is growing intolerance?

Earlier this year one individual in East Kilbride was sequestrated with debts of 87,165 and zero assets. Another in Edinburgh had accumulated debts of 98,423, again with zero assets, while a third in Laurencekirk had debts of 87,204 and zero assets.

What this tells us is that these individuals have been allowed to accumulate debts over a considerable number of years and, as the debts grew, they simply gave up on any idea of repayment, borrowing more and more to survive and to pay interest on existing debts.

I have little doubt that the bulk of these debts comprise interest accumulated on earlier debts and that the continued borrowing, rather than funding a lavish lifestyle, was simply to hold back the inevitable collapse into insolvency.

The concern is that we are still seeing this level of indebtedness several years into the recession indicating that we have some way to go before many people regain control of their finances.

But the majority of individuals do not act in this way. Most accumulate debt incrementally over a period of years and then suddenly find that the payments are just beyond what they can afford and the debt spirals out of control.

This is why it is essential to take action sooner rather than later.

By waiting too long, many individuals let the debt grow beyond their financial capabilities and they realise that they will never repay it, or it will only be repaid after 20 or 30 years. They give up and ignore the reality of their situation, fail to make payments or pay only the minimum amount and let the debts accumulate until they fall into personal insolvency.

Acting before the debt gets out of control, either by taking advice or contacting the lender, could reduce the chances of insolvency.

Given that almost 500 Scots a week are being made bankrupt, it is vital to act immediately to address this issue and ensure that people understand the situation that they are in and act to rectify it before it gets out of control.

• Bryan Jackson is a corporate recovery partner with accountants and business advisers PKF.