Insolvency Service warns over bankruptcy

It fears that some people are living lavish lifestyles thinking that they can have debt wiped out as a bankrupt, when in reality the consequences could affect them for as long as 15 years.

To highlight its point, the Insolvency Service has given examples of “reckless behaviour” to show the dangers of running up debt. Examples include those incurring credit with no prospect of repaying, gambling and those who took lavish holidays without paying creditors.

The warnings come as official figures show that bankruptcies have rocketed in the past eight years.

Anyone declared bankrupt will have access to credit restricted for between two and fifteen years, which the Insolvency Service says is often the result of people spending recklessly.

However, advice is available for those looking to get out of their debt without becoming bankrupt and many people are turning to Individual Voluntary Agreements (IVAs) as an alternative.

“There’s no penalty for past mistakes for people who choose to use an Individual Voluntary Arrangement, though they would have to put their lavish lifestyle behind them,” David Mond, chief executive of ClearDebt, said.

“IVAs reduce debt, freeze interest and are carefully calculated to be affordable, but they still require people to do their best to repay an agreed proportion of what they owe.”