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Scotland set for a 'flood of bankruptcies' in 2012

Citizens Advice Scotland have backed leading economists’ predictions of a ‘flood of bankruptcies’ in 2012, and have urged people who are in debt to get expert advice to help them cope.

Two leading financial organisations. R3 and PKF, have said today that 20,000 Scots went bust in 2011 and that the trend will increase this year, with 400 Scots likely to become insolvent every week in 2012.

Responding, CAS Head of Policy Susan McPhee says:

“Sadly, the evidence from CAB offices across Scotland confirms that these sorts of figures are not unrealistic. The vision of a flood of bankruptcies is certainly a sobering start to the year. But CAB advisers see the real live people behind these statistics, and every one is a personal nightmare.

“The economic equation is quite simple. Over the last few years the cost of living has increased, while household incomes have decreased. This squeeze has forced many households into debt, and as their incomes have continued to decline these debts have snowballed, to the point where the debtor simply can’t pay them off. Such people have limited options available to them, but bankruptcy is one. And for many it is a ‘less bad’ option than continuing to drown amid massive, ever-increasing debts.

“Nobody wants to be declared insolvent. It is not a soft option. It is a stressful and difficult process emotionally, and it can significantly restrict your financial options later in life. It is not a step we would ever advise anyone to take lightly. However, if your debts have become un-manageable, and you really can’t see a way out, then bankruptcy can be your only realistic course. That’s why we have argued for some of the changes that have made it easier for people to take the bankruptcy route, and it is those changes which have partly contributed to the rise we are now seeing.

“In the light of headlines like these, it’s very important to get the message out to people that help is available. Anyone who is even contemplating bankruptcy must get independent expert advice. Such advice is available free from their local CAB. The steps we advise will always depend on the specifics of each individual case, but our help is always free, confidential and impartial. We can often help stave off the ultimate step of bankruptcy, and if it does come to that we can help steer you through the process. Even if your debts are relatively minor at the moment, you should still get help to make sure they don’t spiral out of control.

“However, the real long-term solution to this problem is to change the whole culture of lending that exists in this country. We need more affordable credit options, so that people don’t get into un-manageable debt in the first place. People on low incomes will always need to borrow money sometimes, but the problem comes when they are exploited by lenders who impose high rates of interest and lend to people who don’t have sufficient income to repay the loan.

“Scotland’s CAB advisers see every day how debt destroys peoples lives. Bankruptcy can be a solution for some, but is never ideal. And these problems could be avoided if there was a culture of more responsible lending, including better public education about debt, and more support for both affordable low-interest credit options and free independent advice services.”

To contact the CAS Press Officer, please call 07774 751655.