With so much in the media about young people racking up enormous debts and their apparent indifference for spending money, this article paints a different picture which shows many young Brits concerned about the debt of their parents.

Research conducted by AA Legal Services shows that some 70 per cent of young Brits are concerned over the prospect of inheriting debt from their parents after they pass away. In addition, over 85 per cent of those under the age of 35 were worried over what may arise from their parents’ wills.

Debts are not passed on from parent to child however assets they may want to leave to their children such as houses will be affected if they leave a legacy of debt.Assets will be sold to pay the debts before being passed on.

Although many young people rely on parents for help when buying a house and for support through university, it seems they are still concerned about future inheritance.

“As young families take on bigger and bigger debts to get a foot on the property ladder, few are banking on a future inheritance to help clear the mortgage.” remarked James Molloy, head of AA Legal Services.

It seems that credit card companies appear to be looking at ways to sting customers in the wake of the reclaiming bank charges movement in which thousands of people across the UK are claiming their illegal bank fees back.

According to the BBC:

Credit card companies are imposing new fees which could hit thousands of customers who buy gift vouchers or indulge in the occasional flutter.

Some of the biggest credit card companies have extended their definition of cash advances to purchases such as gift vouchers and online gambling

The interest rate on cash transactions can be as much as double the rate for purchases, and there is usually a cash handling fee. The other sting is that there is no interest-free period.

With many people in debt claiming that irresponsible lending and tricky credit card fees are to blame for their debt problems, it is just a timely reminder to always read the small print and know what you are signing up for, and the subsequent implications of different types of credit before starting spending money that you might not be able to claim back

Cash withdrawals on British credit cards amounted to £8.22bn in 2006, according to the Association for Payment Clearing Services (APACS). Each of these could have had a transaction fee usually of 2% or more, bringing in £164m in transaction fees plus interest. The average interest rate for cash has increased from 18.08% to 20.27%.

It seems consumers are confused and is it any wonder with different rates for different purchases and unclear definitions of what is counted as a “cash transaction”. In the future, it is likely more and more people will be stung by these fees.

For those is serious financial difficulty, every penny counts.

Gordon Brown’s 10th Budget speech left many people scratching their heads.

Here’s The Standard’s Guide to the main points:

Gordon Brown chopped 2p off the basic rate of tax in his eleventh and final Budget this afternoon. Here is our guide to the main announcements in his Budget speech:

Income tax cut

• The basic rate of income tax to fall from 22p to 20p - its lowest for 75 years - from April next year. Income tax and National Insurance merged. Higher rate income tax threshold increased from £38,000 to £43,000 a year from April 2009.

Beer and wine up

• Beer to go up by 1p a pint, wine by 5p a bottle. No rise in spirits. Sparkling wine up 7p a bottle. Midnight Sunday

11p on packet of cigarettes

• Cigarette duty goes up by an inflation-linked 11p on a packet of 20 from 6pm today. Nicotine patches and gums will have VAT cut from 17.5% to the lowest possible level of 5%, for one year from 1 July.

Fuel duty up 2p

• Fuel duty rises 2p a litre deferred six months until October.

Dirty cars pay more

• 30% increase in road tax for the most polluting vehicles. Other very efficient cars will receive an immediate 30% cut in duty. Tax will remain at zero for cars that produce the least emissions.

New IHT threshold

• Threshold for inheritance tax to rise from £285,000 to £350,000 by 2010.

Tax cut for business

• Corporation tax cut by 2p from 30p to 28p in the pound. Takes effect from April 2008.

Boost for pensioners

• Pension credit guarantee to rise to £130 a week by 2009. Income tax free allowance for pensioners under 75 to rise from £7,280 to £9,770 in 2010.

Child benefit to rise

• 200,000 young people to be lifted out of poverty through extra child benefit, which will rise from
£17.45 to £20 a week for the first child by 2010.

Tax help for families

• The tax threshold at which a family with two children starts to pay income tax will rise from £22,500 to £24,250.Further funding for there to be six children’s centres per constituency or 3,500 across the country, emphasising the importance of early learning.

ISA allowance up 20%

• Maximum tax-free cash allowance for ISAs to rise by 20% to £3,600.

Extra cash for schools

• Overall spending on education will rise by 5% each year to £74 billion in 2010, bringing annual spending per pupil to £6,600.

There was an interesting article on The Motley Fool on Thursday entitled ‘Bank Accounts For Bankrupts’.

Apparently:

One of the first things that happens when you go bankrupt is that all your bank accounts immediately get frozen. […]

The answer is to open a basic bank account. […]

Only three banks will accept applications; Barclays, Nationwide and the Cooperative Bank.

So what of HSBC and Lloyds, both of whom have posted massive profits? According to The Fool:

No other bank accepts undischarged bankrupts - something the Treasury Select Committee commented on last November when they said denying basic bank accounts to undischarged bankrupts seemed contrary to the government’s policy of encouraging enterprise by allowing bankrupts to make a fresh start.

There’s good news though:

As a result they’ve recommended a change to the Banking Code to ensure that basic bank accounts are not unreasonably denied to those with debt problems. They have also told the banks to review their policies regarding access to such accounts for undischarged bankrupts.

The Bankruptcy News Team would love to hear from anyone who has experience trying to get an account while bankrupt…

The BBC reported today (27/02/2007) that:

Mortgage approvals by the UK’s biggest banks dipped slightly in January, said the British Bankers’ Association (BBA).

The underlying number of mortgages approved for house purchase last month was 44,804, a fall of 1% from the figures from a year earlier.

The Bankruptcy News team wonders if this is a result of the growing debt mountain - perhaps people just can’t afford to borrow.

But then again, This Is Money reported yesterday (26/02/2007) that:

Homes rise £1,200 in sellers’ market

According to the BBC:

A BBA spokesman said that despite the recent rises in interest rates, lending had not yet begun to subside.

It looks like we’re just at the beginning of this particular story.

This week saw the publication of a ‘bankruptcy league tables’.

According to BBC NEWS 16/2/2007:

South West tops bankruptcy league

Low wages and high house prices are partly responsible
Six of the top 10 bankruptcy hotspots in the UK are in the South West, according to the credit reference agency Experian.

Research carried out for the BBC has suggested the gulf between incomes and house prices may be to blame.

Torquay has the highest proportion of bankruptcies per head in the UK.

Other hotspots include Plymouth, Newton Abbot and Barnstaple in Devon, Bournemouth and Weymouth in Dorset and Truro in Cornwall.

TOP 10 BANKRUPTCY HOTSPOTS
Torquay, Devon
Hull, East Yorkshire
Plymouth, Devon
Bournemouth, Dorset
Eastbourne, East Sussex
Newton Abbot, Devon
Barnstaple, Devon
Hastings, East Sussex
Weymouth, Dorset
Truro, Cornwall

Sometimes Bankruptcy is the right option, But it is so important to get the right advice. Not everyone seems to know all the facts. In saying that, bankruptcy does seem to be getting more media coverage these days, in fact most debt solutions do as more and more people find themselves in too deep.

This article in the Observer should help you decide:

 Bankruptcy or IVA? With creditors at the door, take the right escape route

Insolvency is on the rise, writes Lisa Bachelor, but what are the options?

Sunday February 18, 2007
The Observer

Almost 30,000 people in the UK entered into bankruptcy or an individual voluntary arrangement (IVA) during the last three months of last year - nearly 300 a day. That was 60 per cent more than in the same period in 2005 and 7 per cent up on the previous quarter, according to figures from the government’s Insolvency Service.Bankruptcies make up the bulk of this figure, but the number of IVAs is growing fast. Whereas bankruptcies grew by just over 30 per cent last year, the number of IVAs more than doubled, and it is expected that this year their number will exceed bankruptcies for the first time. But there is much confusion about how they work and what you will have to pay.

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Bankruptcy

 

What is it? Becoming bankrupt means you are declared in law to be unable to repay your debts. You have to apply for bankruptcy through the courts and, if successful, your assets will then be distributed among your creditors.

 

Typical cost A £150 court cost, plus £325 to the Insolvency Service. If you are in receipt of benefits, you can apply for an exemption from the court fee. If you have property to be disposed of, there are ongoing costs, but these will be taken from the proceeds of the sale.

 

How long does it last? You can now be discharged from bankruptcy in a year, but a note will stay on your credit record for six years.

Advantages You get to discharge all your debts completely.

Disadvantages Not only will you lose your home if you have one, but your credit rating will be affected for at least six years, probably longer. Your name and address will be published in the local paper and you will be barred from entering certain professions, such as accountancy.

‘You should always think very carefully about bankruptcy, but for people with substantial debts and no assets it can be the best option,’ says Sue Edwards of Citizens Advice. ‘If you do have assets, an IVA may be better.’

IVA

What is it? An IVA is an agreement drawn up by a specialist practitioner under which the creditors to whom money is owed agree to a regular repayment plan, which reduces the amount of money the debtor needs to pay off overall. Interest on the debt is frozen.

Typical cost Fees vary enormously between IVA firms but, typically, they will amount to £7,000, which includes a £2,000 set-up fee and a continuing annual supervisory fee. The size of the fee does not affect how much debtors have to repay each month, as an insolvency practitioner will work out a repayment plan for a debtor based on how much they can afford each month for a five-year period, and the fees are taken out of this amount. Seventy-five per cent of the creditors have to agree to the practitioner’s proposal before it can go ahead, as it will mean writing off some of the debt owed.

How long? Typically five years.

Advantages The big advantage over bankruptcy is that the debtor gets to hold on to assets, such as property, so long as the terms of the IVA are met. An IVA is not publicised in the way a bankruptcy is. Sometime as much as half of the debt is written off.

Disadvantages If you fall out of the IVA in the early years, most of the money you have been paying will have gone towards the IVA firm’s costs. So you may not have eroded much of the original debt at all.

‘IVA factories’ have come under fire lately, chiefly from banks, for what they see as misleading advertising exaggerating the amount of debt that can be wiped out. The Advertising Standards Authority is investigating four complaints about ads for IVAs and that may produce additional industry-wide rules on issues such as transparency of fees.