MSE News: 'Bankruptcy light' hits young people

As serious a matter as having too much debt is, let us not forget that (most of (thanks immoral!)) these people have spent the money and received goods and services in return. They have received benefits from spending that cash, those benefits should (IMO) be paid for. PR

Why on earth do lenders allow those with such minimal assets borrow such huge sums?

I had my debt relief order go through in November. Im 35 and have worked all my life and like alot of people I had a credit card / loans etc but was comfortably making repayments each month. Ive since been made redundant twice in 3 years and had a relationship break up and am now a single dad to my son who is 7, I was having threatening letters and calls every day and saw no way out of it until I read about debt relief orders and this was my only option, i dont feel good about it but it has turned mine and my sons life around as we can now live again and i am doing voluntary work in the meantime. Id just like people not to jump to conclusions that people have gotten themselves into this situation and that its their fault.

gadgetmind wrote: »

Why on earth do lenders allow those with such minimal assets borrow such huge sums?

hazza04 gives one example. In general you get the credit while working, say to buy a car borrowing only a modest portion of your income, then end up unemployed without unemployment insurance and unable to pay the debt. Add some furniture for a move and a few credit card bills that started at 0% but couldn't be cleared because of unemployment and you can end up needing to use a DRO to recover. By that point you've probably spent all of your savings and sold anything substantial that you can sell.

Others might start a small business that fails, being left with no job and business debts.

Sometimes there's an element of blame that might be appropriate for the borrower but the main cause is likely to be a change of circumstances. If those show no signs of changing it can be time to reset things and try to get back to a stable situation with a DMP, DRO, IVA of bankruptcy.

For some cases people could have protected themselves with unemployment insurance and/or permanent health insurance for long term illness cases. In others that's just not possible. Those who've been able to accumulate more money are less likely to have an issue but younger people are likely to have smaller safety margins than those with significant pre-retirement savings and investment pots.

So we have a lender loses, borrower gets a chance to try again system. There's long historical precedent for this, with some societies even automatically clearing all debts periodically, regardless of the borrower's ability to repay. Just recognition that sometimes forgiving debt is the best solution for society as well as the individual.

Best wishes to those who find themselves in such dire straits.

Declaration of interest: I've lost a small amount of money to a person using a DRO via lending to them. Same for IVA, bankruptcy and some other causes.

IMHO, the vast majority of young people who find themselves struggling to repay debt, do so because they have no concept of what it means to be able to afford goods, products and/or services and thus they take on debt in a skewed belief that they can afford the purchase and have no concept of what is required to manage the debt.

The dictionary definition of afford when related to expenditure is something along the lines of being able to meet the expense without incurring financial difficulties or without risk of undesirable conseqences.

So the old school thought process was based on considering ones current income, forecast income, job security, outgoings, savings, debt obligations, need, etc, and thus it took into account a whole bunch of stuff to ensure that if the purchase was made, a blip in ones circumstances did not have a negative impact on ones financial health.

Nowadays when folk refer to being able to afford a purchase, the definition of being able to afford appears to refer to.... "the ability to meet the minimum monthly payments based on ones current and immediate circumstances".

Now, meeting those monthly payments may require continueing to work overtime currently available but not guaranteed in the future. It may require reducing the monthly payments on another outstanding loan so that only interest is repayed and it sure as heck won't factor in the possibility of unforeseen bills, repairs, unpaid leave, etc.

Therefore when the unexpected or perhaps inevitable happens, such as the overtime is cut back for a month or two, unpaid time off is needed, a large repair bill comes in, etc, folk can no longer manage the debt. Worse still, they see themselves a victim of unforeseen circumstances!

Another issue is young folks perception of what an item costs. This is something summed up beautifully by a female relative and their twentysomething son. During a recent visit I noted that he had changed his 4 year old car for a new one, same make, same model, slightly higher spec. I commented on the car and he stated .... "I wasn't really planning to change it, but when I realised it cost the same as my old one, I couldn't say no." .... a fact confirmed by his proud mother.

Needless to say the pedant in me was intrigued to know how a new model and a 4 year old model of the same vehicle could possibly "cost" the same?

This was explained to me by the young lad who stated that after trading in his 4 year old car and renegotiating his finances, the monthly payment for the new car cost exactly the same as the old car, so the cars cost the same. Needless to say he was unable to clarify what his new debt level was or how many additional years of payments were required to clear the new debt, only that the new car did not cost any more than the old car.