Repossessions, bankruptcies and insolvencies on the rise…
Perhaps it’s no surprise in the current economy that the above situations are much more common. Now that government support has stopped, i.e. the furlough scheme and bounce-back loans, many businesses are finding it tough as they navigate this stage of the pandemic. Whilst many businesses have thrived since restrictions lifted in July, there are still some that are yet to meet the level of income they enjoyed before Covid came along.
For some enterprises, the pressure has simply become too much. In September 2021 there were 1,446 insolvencies, a 56% increase on the same month in 2020. Experts warn that this is just the beginning and that we’ll see many more.
As well as reduced income, companies are battling rising rent and utility costs. They’re also suffering from staff shortages and the challenges of receiving the stock they order. Their suppliers have been forced to raise their prices to keep their own heads above water. Inflation is rising fast. There’s only so much a small business can pass on to their customers before it prices itself out of its market.
The Bank of England suggests that the debt levels of a third of all businesses equate to ten times their cash balances, which is a precarious position to be in. Those that do make it through will be paying back their debt for years.
Some small businesses are fully liable for any debt or losses their business makes. If their enterprise is not a limited company and they’re registered as a sole trader, if their business folds whilst owing money to creditors, they will be personally responsible. This leads financial experts to believe that the number of individual bankruptcies will also escalate in coming months. People already living on the breadline will simply fail to cope.
It’s a horrible position to be in, and I can say that from experience. I was subject to bankruptcy around seven years ago. If suicide actually resulted in a life insurance pay out, I would have seriously thought of this as an option—I felt that desperate at the time. However, the only viable solution was bankruptcy.
Your troubles don’t automatically end when your bankruptcy period finishes—despite it no longer being on my financial record, it still affects any decisions credit-givers make and has provided more than a few extra hurdles to jump through when re-mortgaging for a better interest rate or when I change my phone contract, for example. Not that I regret it…going bankrupt saved my sanity, my marriage and the future wellbeing of my family.
Though the media paints various stories of calculating companies/businesspeople who purposely and perpetually go bankrupt/insolvent, this is not the case for the majority of those petitioning to go bankrupt—for most people it’s a very last resort.
I am thankful that I’m in a better financial position now the economy has tanked again, though I’m still only one or two paydays away from disaster, as are many other people. I went back to work after being bankrupt, though I kept my (very) small business as a lifestyle enterprise; I needed a reliable income in order to build back my fragile finances. So much so that I now have four jobs as I write this—I don’t want to ever again rely on one source of income in case the rug is pulled out from under me.
The bosses of bigger businesses will also have taken a financial hit because of the pandemic, but if you were in a good position before Covid came along, you’ll likely still be managing now. It’s the people like me, who were just getting by when the virus appeared who will be hardest hit. It’s so difficult to build a financial cushion when your money is being sapped from you on a daily basis because your outgoings equal (or exceed) your incomings; if you’ve already cut your expenditure to its bare bones, once price rises come into the picture, there’s nothing left to play with. Where do you find extra money in that scenario, if you’re already working all the hours God sends?
The UK’s level of income inequality is ‘very high’ compared with other countries, according to The Equality Trust. The top fifth of all earners hold 40% of the entire country’s wealth. The poorest fifth holds just 8%.
The surge of property repossessions, insolvencies and bankruptcies will hit the poorest the hardest—to what extent remains to be seen. The cost of this ‘written off’ debt will impact the economy further and could result in even more price hikes for everyone…but, as I can testify, if that’s the only way out for someone, what else are they supposed to do?
The people for whom bankruptcy or insolvency is their only answer didn’t ask for Covid to come along. They might not have done anything ‘wrong’, so to speak—it’s more likely that they will just never have had the opportunity (or luck) to escape their situation.
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