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Jane Moir

Banks and credit card companies are snubbing a voluntary repayment scheme which spares people from bankruptcy.

  The refusal to work out debt repayment with clients comes despite skyrocketing bankruptcy rates, already double those of last year.

  A mere seven creditors out of a potential pool of thousands have consented to Individual Voluntary Arrangements (IVAs) over the past 18 months.

  The formal proposal for repayment by a debtor spares the person from the stigma and restrictions of bankruptcy and cuts legal and administrative costs.

  It also slashes the Official Receiver costs involved in bankruptcy supervision, ultimately borne by the taxpayer.

  'It's difficult to determine why they [financial institutions] are taking this attitude,' said acting Official Receiver Eammon O'Connell.

  'Maybe they still view bankruptcy as some kind of punishment.'   On the company level, financial institutions have been anxious to work out restructuring arrangements, reflected in corporate insolvency rates which are levelling out.

  However, bankruptcy levels continue to soar, particularly with individuals whose only option is to file a petition.

  To September this year, 2,737 bankruptcy petitions were filed in the High Court, compared with a total of 1,362 last year and 829 in 1997.

 There has been a four-fold increase in the number of individuals filing bankruptcy petitions, already standing at 1,939 compared with 492 in 1998.

  By comparison, there were 870 winding-up petitions to September this year. Last year's figure was 946.

  The IVA scheme aims to 'rehabilitate . . . get people out of bankruptcy sooner rather than later, or a preventative measure to stop them from going into bankruptcy,' Mr O'Connell said.

  In the majority of cases, bankrupts will cite up to 10 financial institutions they are indebted to. The bulk of debt stems from credit cards.

 'It's a very, very profitable side of banking,' he said.

  Other sources within the Official Receiver's office have recounted a meeting with major creditors - including various banks and credit card companies - earlier this year.

 'The message we got was that they are not concerned about the return in the particular cases, they want to teach the other creditors a lesson,' namely to send out a warning to potential debtors, one source said.

 'We are under severe pressure, we have to try to find ways to streamline as far as possible,' he said.

 Under an IVA scheme, the Official Receiver's role is considerably leaner than in a bankruptcy case, where the person is supervised until obtaining an automatic discharge after four years.

BANKRUPTCY 



Creditors snub voluntary repayment scheme as rates climb