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There's something about this debt that stinks!

The mountain of personal debt which many people are struggling to repay was leant by banks in the rapacious pursuit of profit, a hostile act that was not in the personal interest of borrowers – it is therefore ‘odious debt’ and should not be repaid.

 

Why am I in Debt?

Have you ever sat down and looked at your debt liability only to feel that somehow you’ve been played, duped or conned? Sure, you take responsibility for taking out all those cards and loans, after all, nobody was holding a gun to your head as you signed the agreements, but still, you can’t help feeling that it’s all a set-up. There’s something about it that stinks.

Why is it that you were lent so much money with few or no questions asked? Why didn’t the bank run a cross-check with other lenders to see how much existing debt you were already carrying? Yes, something’s not quite right. And if it feels a little like somebody maybe wanted you to be in debt then that’s because this is exactly the crux of the personal debt crisis and the reason why so many people are saddled with crippling liabilities: banks wanted people to have all their cards and loans because it meant big profits for them – they didn’t care whether it was going to be damaging for you or not.

And now you’re buckling under the weight of repayment. You’re looking at years of hard graft and are struggling to see the light at the end of tunnel. Well, there is an answer. As the world wakes up to the fact that the system is rigged in favour of the few, the legions of debtors in thrall to the power of the banks can, with a little smart thinking, extricate themselves from their trap by taking a cue from nation states who have successfully used the concept of odious debt to declare national debts unenforceable and as a justification for defaulting.

What is Odious Debt?

The term ‘odious debt’ is a fantastic phrase, evoking a sense that there is something rotten about a particular debt, that this debt stinks! But what exactly is odious debt?

The Wikipedia entry for Odious Debt describes the term as:

“In international law, odious debt is a legal theory that holds that the national debt incurred by a regime for purposes that do not serve the best interests of the nation, should not be enforceable. Such debts are, thus, considered by this doctrine to be personal debts of the regime that incurred them and not debts of the state. In some respects, the concept is analogous to the invalidity of contracts signed under coercion.”

The founding father of the odious debt principle was Alexander Sack, a lawyer in post-revolutionary Russia. In seeking to distinguish between debts incurred for the benefit of a nation and debts incurred by a regime for self-serving purposes, Sack also considered the role of the lenders, believing that creditors who lent to regimes in the knowledge that the money would be used for ends which were contrary to the interests of the nation had actually committed a hostile act (with regard to the people) and consequently could not expect a nation freed from that regime to assume liability for these debts.

From Macro to Micro – how is my personal debt odious debt?

It is Sack’s identification of the lender’s role and recognition of their awareness that they were lending money in an unethical manner, purely in the pursuit of profit and without caring for the purposes to which the money was being put to, that is transferrable to the current personal debt crisis and consideration on the part of individuals in deciding to default.

Creditors who lent to people in the knowledge that the money being lent was contrary to the interest of the individual, as occurred with the predatory lending practices of the banks during the easy credit era, have created an odious debt at the micro level and this can be used as an ethical justification for defaulting on personal debt.

Consider the fact that pre-credit crunch, the banks were actively targeting people who they knew would never be able to fully repay their debts as these people made for the most profitable customers. If foisting credit upon Bill & Nora Poorfucker living on a council estate and working part-time in the local charity shop is not a hostile act on the part of the lender then it’s difficult to imagine what is. Also, the banks were so aggressive in their marketing and promotion of credit (think constant mailshots and credit card cheques landing on the doormat every other day) and didn’t care two hoots what people they lent to would actually do with money or what they wanted it for – just the type of practices that can be considered contrary to the interests of the individual.

When we consider the nature of the money lent during the credit boom – particularly why and how it was lent – a strong case can be made for justifying default (on personal debt) on an odious debt principle.

 

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Squat the lot

As New York cracks down hard on the Occupy Wall Street protesters in Zuccotti Park and the Corporation of London serve notice on the London branch of the Occupy movement at St. Paul’s, Occupy LSX has performed a smart counterattack by taking over a vacant UBS building in the city.

This is a clever move by Occupy LSX, sending a message to politicians and the masters of global finance that this movement has legs and won’t be easily crushed: the level of discontent runs too deep.

If the government and the city authorities are embarrassed by the presence of protestors on the steps of St. Paul’s and Finsbury Square, they will now be regretting ever trying to evict them; hitting the protestors with a hammer will only create smaller, more widely dispersed fragments that will be harder to clean up.

You can read details of this ‘public repossession’ on the Bank of Ideas website as well as finding details of upcoming events.

http://www.bankofideas.org.uk/2011/11/18/initial-press-release/

Who will enter the Bankruptcy Hall of Fame?

It’s almost time to close the piss-takers parade that is the ‘Bankruptcy Heroes’ poll and announce a winner. However, the audacious debt-dodging deeds of regular punters Phillip Hoare & Leigh Cooke, have put them way out in front of the chasing pack and this pair are currently neck-and-neck with 21% of the vote each!

An outright winner is needed so I can track them down to present them with their award: a copy of The Bankruptcy Diaries and an interview slot on this blog.

So, please cast your votes and decide who should enter the Bankruptcy Hall of Fame – should it be the ex-copper with many vices, or the smash ‘n’ grab chancer?

You can cast your vote by visiting the Bankruptcy Heroes page. Voting closes at the end of the month 30/11/2011

The levels of personal debt incurred by young people today are creating a generation of people locked out of acquiring property and other assets that previous generations have enjoyed, according to a recent CCCS report ‘Debt and the Generations’.

Young people are increasingly concerned about their debt problems

The report states that consumers are now ‘acquiring large levels of debt, especially unsecured debt, much younger’ and, that, ‘due to rising house prices and reducing incomes it seems unlikely that younger households will be able to acquire assets in the same way their parents and grandparents did.’

The report also identifies the impact of rising student loan debt on the ability of young people to acquire wealth. And it is no surprise to read in the report that those who cannot count on help from ‘the bank of mum and dad’ (or mummy and daddy), will be more affected by debt, thereby exacerbating existing inequalities.

 

Economics for the Debt Generation

Faced with such a bleak future and a system that is so weighted against them, young debtors need to take a step back and think purely in terms of self-interest and look at the cold, hard economics of the situation: would it be more financially advantageous to default on their debts and have them written off and then begin the process of saving?

It's all about freedom

It would be fairly easy to sit down and work out how long it would take to pay off existing debts, as well as calculating how little could be saved during the years of debt repayments, then compare this to the amount that could be saved during the same period if there were no debts to pay. Without debts to pay it is highly likely that if an individual were so inclined, that by the time their debts would have been paid off that they could have saved enough money for a large deposit on a house. Of course, if you default then your credit rating will be bad for 6 years but it is likely to take debtors far longer than 6 years to repay their debts, so for most debtors, default will still make sound economic sense.

Above all, it is simply a financial decision, the type that big banks and financial institutions perform daily and without emotion or moral considerations clouding their judgement.

It is important to remember that not everyone is obsessed with getting on the property ladder but the same logic applies to young debtors who just want to live.

The essential question that every debtor should be asking themselves

One thing to investigate when considering default is the prospect of post-insolvency restrictions such as Income Payment Orders, but these can be avoided, principally if you happen to be unemployed at the time of your insolvency. This was how it turned out for me and is something I explained in my book. However, while I could have used the last few years to save, I preferred to invest in myself and work fewer hours in order to pursue creative projects. Whatever your goal, the question of debt always boils down to the same question: would default enable me to achieve what I want quicker than repaying my debts? This is the essential question that every debtor should be asking themselves.

Other key findings of the CCCS report:

• Increasingly first time buyers (FTBs) can only get onto the housing ladder with help from the ‘bank of mum and dad’ – 45% of all FTBs in 2010 received financial assistance, compared to 20% in 2005. For FTBs under 30, 84% require financial assistance in order to buy. This is leading to the exclusion of poorer young households from the housing market and perpetuating existing disparities in wealth within generations.

• The decade in the run up to the financial crisis saw a huge transfer of wealth from younger home buyers to older generations through the mechanism of rising property prices, and taken together the over 60s now own nearly half of all net assets in the UK. In contrast the under 30s own just 5%.

• Student loans will also impact on the ability of younger households to acquire wealth. Total student debt outstanding is expected to grow to £153 billion in real terms by 2031, with loan repayments amounting to nearly £7 billion a year. With student loan repayments reducing available income, future generations will find it difficult to save or invest in pensions until they are older, which will impact considerably on their quality of life when they reach retirement age.

The number of asset-less debtors going bankrupt has reached such levels that the cost of processing these bankruptcies is becoming unsustainable for the Insolvency Service, according to Stephen Speed, chief executive and inspector general of the Insolvency Service, who was speaking at the recent Insolvency Today annual conference.

While this news of asset-less debtors using our easy bankruptcy laws to start afresh is encouraging, Speed also said that a point had almost been reached whereby taxpayer money would be required to cover the shortfall of the processing costs, which, according to reports, seems likely given that the Insolvency Service was forced to write of £81 million earlier this year.

Try the Banks

No, you're not having any of it back

Following the great taxpayer robbery of the banking bailouts – where free-market profit-chasers brought the world to its knees with their financial jiggery-pokery and eye-watering bonuses and then went cap in hand to the state when it all blew up – the idea of more taxpayer money being required to plug a hole, this time to cover the mistakes of individual borrowers, will no doubt result in more opprobrium being directed at debtors by the more pious sectors of society. Yet, and now stop me if this sounds ridiculous, surely it would be better to assess each individual’s case and try to determine whether the lenders had been at all culpable and had irresponsibly lent to people they knew would have little chance of paying the money back?

Making the banks pay for their mistakes and their greed – what a ridiculous notion.

I was recently interviewed on the John Griff programme on BBC Radio Northampton. This was my first (and hopefully not my last) radio interview and it was a lot of fun. Amongst other things, we discussed my experiences of personal debt and bankruptcy which lead to me writing my book.

UPDATE: The interview is now available to listen to here.

I was recently asked by the guys from the Debtology website to write a guest post in response to an earlier article on the subject of bankruptcy (‘Bankruptcy – what IS the big deal?).

In my piece I talk about why we need our easy bankruptcy laws and also about how attitudes toward debt and bankruptcy are changing.  

If you are thinking about going bankrupt but are maybe worried about how you will be perceived, then you should definitely have a read.

The article is available here.

PS. If you are worried about debt and in need of free debt advice, then perhaps the guys from Debtology can help.

Judge Nicholas Chambers QC has become an unlikely Bankruptcy Hero after deciding in a recent court case to write-off a customer’s £20,270 debt to MBNA, ruling that the credit card company and their debt collection minions had ‘tortured’ borrower Keith Harrison with the frequency of their phone calls.

Debtors 1 Credit Cronies 0

 Mr Harrison argued that he wasn’t sent the Terms & Conditions when he took out the credit card, and this was contrary to the Consumer Credit Regulations 1983. As MBNA could not prove that they had sent out the T & C’s, the judge ruled in Mr Harrison’s favour.

 In condemning the insidious practises of the credit industry, the Judge’s comments make for fascinating reading:

 “In my view, the Claimant rightly complains that, mainly by MBNA but also by the Defendant [debt collectors Link Financial], he was hounded by telephone calls seeking payment of what was said to be due. The calls were a form of torture oppressively frequent in amount and often without attribution to an identifiable number.”

 It seems to me that such conduct has no proper function in the recovery of consumer debt.”

 “[There] can be no excuse for conduct of which it must be supposed the sole purpose must have been to make the Claimant’s life so difficult that he would come to heel. I cannot think that in a society that is otherwise so sensitive of a consumer’s position this is conduct that should countenanced.”

By highlighting the fact that the calls were often from an ‘unidentifiable number’, the judge brings attention to the psychological effects of the money-chasers bullying methods. Hopefully this judgement can be the start of a process which sees such practices outlawed for good.

To read the full text of this excellent judgement click here – it’s very short.

The comment section of this Yahoo finance article also makes for interesting reading.

A recent article by Lisa O’Carroll highlighted the interesting phenomenon of bankruptcy tourists from Ireland heading to the UK to discharge their debts. Due to more favourable insolvency laws – a bankrupt in the UK is discharged after just twelve months, whereas in Ireland it’s a draconian twelve years – Irish debtors are doing the sensible thing and crossing the sea for a quick release from debt.

Fish 'n' Chips, Tea, Becoming Debt Free

The most fascinating revelation in the article was that, ‘as few as 29 people were made bankrupt in Ireland last year’, a staggeringly low number considering the severity of the property crash in the Republic, especially when compared to the 79,000 who went bankrupt in the UK during the same period. It’s not difficult to deduce that the UK is effectively operating as Ireland’s bankruptcy court, which is considerably more helpful to Irish citizens than another bailout loan. Although ascertaining exactly how many of the UK’s bankrupts are made up of Irish citizens would be difficult, and clearly some Irish debtors will be eloping overseas without bothering with any formal debt discharge procedures (I would love to hear from you guys).

I just hope the message is getting through to the people at the bottom. The Irish banks have had their bailout, in turn subjecting citizens to some of the most brutal cuts in Europe. Now we hear tales of Irish property speculators bailing themselves out, by utilising UK laws. I’ve already called for a ‘People’s Bailout’, and now I extend this call to the people of Ireland – don’t be the chump left with a sackful of debt whilst everyone else extricates themselves from the mess. Get yourselves over to the UK and get rid of that debt!

Update: I have found a great article with information for Irish citizens wishing to go bankrupt in the UK. If you wish to know more then click here.

Thou shalt remain in servitude

The latest insolvency statistics were released yesterday and, as usually follows such announcements, the comment threads of news sites were awash with the protestations of indignant moralisers, complaining about the unjustness of it all – at how people can simply walk away and leave a trail of bad debts. Perhaps these preachers should stop for a moment to consider the absurdity of their outdated position?

Post- economic crisis, the banks have been bailed out leaving the citizens of this country to bear the brunt of savage cuts, which are the result of a huge deficit caused by the bankers’ unchecked greed and recklessness. Yet nothing has changed – the rotten system remains unfixed, and huge bonuses are being paid out once again. Proof of a return to ‘avarice as usual’, on the part of the global elite, was confirmed by Bob Diamond, CEO of Barclays, who last month brazenly told the Treasury Select Committee that, “there was a period of remorse and apology for banks and I think that period needs to be over”.

Ten Hail Marys...

In light of the gross inequalities of a rigged system – where the rich and powerful continue to profit and the masses take the pain – crying foul over those at the bottom freeing themselves from the debt shackles handed to them by the global lever pullers, is to effectively disseminate the banks propaganda for them, helping to keep the system functioning. 

A People’s Bailout

So the bankers have had their bailout and announced that their period of penance is over, but what of the millions of indebted people who don’t have anyone coming to their rescue? The people have an escape route too – in the form of easy insolvency laws. So if you’re over-indebted then don’t think twice about opting to bail out. Certainly don’t listen to the howls of righteous indignation as you announce your decision. Grab the parachute, take the leap, and float down into the land of freedom…

Can't handle life in a cage man

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