Fatal mistake

By CLARE HALL
Updated:

 

Life looked bright for the Redmans eight years ago. Brian, a butcher, had opened his second shop and dreamed of a modest business empire.

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Then a financial nightmare struck, throwing the family's life into turmoil. Brian found he was being wrongly pursued for a £3,600 debt. It had been run up by another Brian Redman, also from the Sussex area where Brian was in business.

But the investigations agency employed to track down the debt decided that Brian the butcher was their man. It was a mistake that was to cost Brian his business and push him into bankruptcy.

The alleged debt - rent owed to a landlord - was registered with credit reference agency Infocheck and Brian was immediately blacklisted.

Then his troubles began in earnest. Wholesalers started refusing to supply Brian's shops unless he paid cash. Brian says: 'Small businesses live or die on their ability to get credit. Word spread like wildfire that I was a bad debtor and I was finished.'

His shops slumped from success to failure and, with little money coming in, the Redmans fell into arrears on their mortgage.

Brian enlisted the help of a solicitor and supplied photos, letters and character references, but was not able to prove the mistaken identity for a further six months.

At a court hearing, the investigations agency admitted it had made a mistake, but it was too late for Brian. He was in debt in both business and personal life and had no option but to declare himself bankrupt.

The first few years were tough for Brian, wife Tina and children Claire and Sean, now aged 11 and 10. Brian had mortgage arrears and his lender, Mortgage Trust, wanted to repossess the family home. Eventually Brian began a new career as a martial arts instructor with the Sama Karate Organisation and slowly paid his arrears.

Life began to improve - until Brian tried to remortgage recently and found his bankruptcy record still counted against him. 'High Street lenders didn't want to know,' he says.

Eventually, he went to JW Mortgage Solutions in Bournemouth, Dorset, a broker that helps borrowers with impaired credit records, and switched to a Bristol & West loan.

Brian says: 'Bankruptcy is tough because you lose everything and once that happens, no one wants to know you. But you have to fight back.'

There are many myths about bankruptcy, according to debt adviser DebtCall's insolvency practitioner, Jim Gibson, which is why people arefrightened of it. But in some situations it can be a good option.

He says: 'Many people facing bankruptcy believe that they will never work again, they will be made homeless and will never be allowed a bank account. But none of this is true. I am a big fan of bankruptcy in the right circumstances.'

Once it gets to this stage, there are usually two options. Under the Insolvency Act of 1986, a person may declare themselves bankrupt or have an individual voluntary arrangement, an IVA.

It is relatively cheap at £350 to raise a bankruptcy petition. But IVAs, administered by qualified insolvency practitioners, are more expensive, costing about £1,500.

Bankruptcy is most appropriate for anyone with insurmountable debts but no assets and minimal income. In this situation all that is left to lose is the debt, which is cleared immediately.

It can take up to five years to recover from bankruptcy, but as money adviser Cy Nawroze of the National Association of Citizens Advice Bureaux says: 'Bankruptcy gives you freedom from your debts and there is an end in sight.'

If debts are £20,000 or less, bankruptcy lasts for two years. If they are more, it lasts for three years. But if you have been made bankrupt before, the period is five years.

An IVA is a formal arrangement in which the debtor agrees to repay creditors over a fixed period - typically five years. The arrangement is most suitable for anyone with some income to spare but not enough to repay the entire debt.

IVAs are similar to a full and final settlement and creditors may agree to accept as little as 25% of the original debt. However, a majority of creditors must agree the deal.

The arrangement can be expensive and it is worth asking a Citizens Advice Bureau or reputable debt adviser to find the cheapest way of achieving it.

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