Creditors avoid bankruptcy action

Lenders prefer late payment penalties to bankruptcy action

Creditors are growing more reluctant to force debtors into bankruptcy, accountancy firm Wilkins Kennedy says.

The percentage of people being declared bankrupt following creditor action has fallen from 28% to 16% since 2000.

Instead, creditors are falling back on imposing lucrative penalty charges on people in debt trouble the group added.

However, overall the number of people going bankrupt is on the rise as more borrowers are choosing to declare themselves bankrupt.

People are making use of less punishing bankruptcy laws to escape their debts, the firm added.

Unless borrowers own property of significant value, it's often not in creditors' interest to call in their debts and force them into bankruptcy Keith Stevens, Wilkins Kennedy

From April bankrupts in England and Wales have been able to come out of bankruptcy faster than previously.

This may have tempted people to declare themselves bankrupt even when their debts were still manageable, Wilkins Kennedy suggested.

According to the Department of Trade and Industry the number of individual bankruptcies reached 10,091 during the first three months of 2005.

The number of bankruptcies was 24.5% higher than a year ago and up 2.8% on the previous quarter.

Lender reluctance

As for lenders, they are showing greater reluctance to start bankruptcy proceedings.

"Creditors profit by lending money to people and collecting interest, and the longer they can keep that cycle going the better for them," Keith Stevens, insolvency partner at Wilkins Kennedy, said.

"Unless borrowers own property of significant value, it's often not in creditors' interest to call in their debts and force them into bankruptcy."

The survey of 800 bankrupts found that the proportion of self-employed had increased markedly since the last time the survey was conducted in 2000.

Nearly a third of people made bankrupt were self-employed compared to one in five in 2000.

The accountancy group suggested that some borrowers may have lied about their incomes to secure large loans only to find that later they couldn't afford them.