The road to ruin

On the surface, Luisa Strudwick was doing fine. But she had a secret: she owed £52,000. This year, she joined the record number of people declaring bankruptcy in this country. Aida Edemariam hears her story and talks to two others who know what it's like to be overwhelmed by debt

September 29, 2006

Luisa Strudwick thinks there must have been about 20 people waiting to enter the county court in Eastbourne when she arrived to be declared bankrupt. "It was quite a pleasure for me in a way to think, 'Oh, I'm not the only one,'" she says - though a closer look at the lists revealed that this was not quite the case. There were two other, business-related bankruptcies. The rest were waiting for decrees nisi. In court, surrounded by unfamiliar officialdom, she was the only one crying. Quickly, efficiently, the judge cut her free. After the months of sleeplessness and secret panic, it was an anticlimax. She felt herself floating home, empty, bewildered, punchdrunk.
In some ways, however, her initial reaction was not so far off the mark. According to the Insolvency Service, there were 23,351 individual insolvencies in England and Wales in the first quarter of this year; an increase of 73.4% on the same period a year ago. For the first time, insolvencies are expected to top 100,000 by the end of this year. Whenever these figures are announced there is more handwringing and excoriation: the big evil banks are to blame, cavalierly lending so much; the chancellor's to blame; no, we are to blame, especially (this in some of the right-leaning press) those of us who are young, or live on council estates and supposedly see insolvency as a get-out-of-jail-free card, a "lifestyle choice".

All explain a bit of the problem, but except for a minority of cases, it often is not that simple. What is true is that declared insolvencies are the canary in the coal mine. Last year, the Citizens' Advice Bureau dealt with 1.25m new debt cases. This week, Datamonitor announced that borrowers from the UK alone account for a third of all the unsecured debt in western Europe, and that the average Briton owes twice as much as the average European - not counting mortgages. It would not take much - recent rises in interest rates and utility bills, sudden unemployment, an injury, a bit of ill-advised home-improvement - to tip some of those cases over the edge.

Strudwick, now 32, lives with her son Jason in a cosy little council house with a garden and an apple tree on the edge of Eastbourne, overlooked by the South Downs. She is both open and understandably wary; independent of spirit, and fragile. Tears well up suddenly, but so, eventually, does laughter. The two of them have just been camping at a music festival and she has been hanging the groundsheet out to dry - "cheap fun" and also a reminder of her childhood, most of which she spent on her grandparents' modest farm in Wilmington, East Sussex, where the mentality was "if you can't afford it, you shouldn't buy it."

At 12 she went to live with her mother and her mother's new partner in nearby Hailsham, which was "more extravagant and more lavish. There was more attention to filling your home with beautiful things - and the rat race. It was the early 80s, and they were climbing on to the lower rung of the ladder." She did not get on with them and left home at 16, without GCSEs, to be a waitress at one of the seafront hotels in Eastbourne. It was "liberating and hedonistic. I lived very hand-to-mouth." Then, when she was 19, she had Jason, "which was a delight. I was pleased about that."

Until Jason was 18 months old, Strudwick lived on benefits; then she took part-time jobs in a clothing store and a care home, work she found she loved. She was living more or less within her means. "I just coped. It was what I wanted, so if you've only got £50, you've only got £50. I never had any issues with pride back then, in terms of taking second-hand things or remodernising things. That didn't come for a long, long time."

Problems began "when I wanted to better myself," says Strudwick. "Maybe it's wrong, maybe it's negative. But I didn't want to be a single parent on benefits." She enrolled in an adult education course, working part-time and studying biology, physics, chemistry and social policy. Returning to school was a shock. "Perhaps I'd been so cocooned for a while, as a single mum, living on a tight budget - and all of a sudden I was in a classroom among people from different walks of life. I found it quite overwhelming at times." She tried to shore up her social confidence by buying clothes, going out; all of it required her to pay for childcare. She began with debt of £2,500. By the end of the year it was £4,000.

But she was in a position now to do what she had decided she really wanted to do, and train as a nurse. It was a full-time, three-year university diploma, and she was on a means-tested bursary, but that was only £460 a month, so she worked night-duty at the local hospital to make up the difference. Jason was at school, so there were fewer childcare costs, but she had to buy books, and equipment, and "it was a very big change in lifestyle". She began spending money, in her lights, quite recklessly. "I needed to feel good about myself, needed to make myself look nice even if I felt horrible. It can mask a lot, can't it, looking good." On the day that she graduated she applied for a consolidation loan of £12,000 to pay off her credit cards. "It was awful."

The thing was that her grandparents' lessons had stuck, in that she was paying all her bills - or at least, all the minimums - on time. Which meant she had a good credit rating. Which, particularly after she was registered as a nurse and a professional, meant that she was sent more and more cards, at lower annual percentage rates (APRs), and offered more loans.

We are, in fact, quite a young society when it comes to dealing with this type and these levels of debt. The first British credit card, a Barclaycard, was issued only 40 years ago, on June 29 1966. Ten to 15 years ago, annual fees were still charged for credit cards, so people did not generally have more than one, says Sandra Quinn, a spokesperson for Apacs, the trade association for payment systems provided by financial institutions. No fees meant a sudden burgeoning of card-carrying, and clever, or not so clever, juggling of APRs. These days two-thirds of the adult population carry an average of 2.5 credit cards each. The same 10 to 15 years have seen a precipitous rise in the marketing of debt as a product: the Daily Mail reported in June, for example, that some banks, such as HSBC and Lloyds TSB, are reversing the trend for branch closures in order to sell credit cards, mortgages and insurance - ie, debt.

And it is in that 10 to 15 years that the causes of insolvency have changed. Most bankruptcies used to be small businesses, notes Paul Mullins, chief executive of National Debtline. They were often forced into it by the Inland Revenue. Now, according to the Insolvency Service, about 50% are personal. "Most people get into unmanageable debt because of an unplanned change in their lives," says Mullins. The "big three" have traditionally been redundancy, illness or a failed relationship. And, sometimes, a new baby. "Increasingly what we're observing is that the people who are phoning us don't have the traditional triggers. They've simply got a lot of debt. And it's just become unmanageable." This type of debt, his staff have observed, is no respecter of age, class or income.

And, up to a point, and over the past two years, it has become easier to get out of. The 2004 Enterprise Act cut the typical bankruptcy term from three years to one. This was intended to help entrepreneurs pick themselves up and start again more quickly, but it applies to consumer debt too. This, paralleled with a record rise in individual voluntary agreements (IVAs, in which debtors pay an agreed percentage of their debt gradually, rather than writing it all off) fuelled by an increase in daytime TV ads from companies selling IVA advice (which are "detail-light," says Mullins, dryly) means that there is an increasing perception that getting out from under debt is simple and consequence-free. But insolvency or bankruptcy still appear on credit ratings for six years, and many mortgage applications ask if you have ever been bankrupt.

Consumer debt, it is often argued, indicates confidence in the future, and contributes to our much-trumpeted run of economic growth. But it can also be argued that it indicates a complete incomprehension of anything like a future. On the way to Eastbourne to see Strudwick, I saw an ad for a week's holiday from Lastminute.com: "Book now. Explain later." Debt may be a measure of a healthy economy and of adulthood (everyone leaves university with debt; it is tricky to get a mortgage without a credit history - ie, a record of debt), but it is also a measure of the extent to which we live in the present, and hide from the future. Yet, as Anya Kamenetz argues in a robust and thought-provoking new book called Generation Debt: Why Now is a Terrible Time to be Young, working just for money, working to live, is somehow also seen as not quite the goal. You have to have a nice home, good holidays, meaningful relationships, and a vocation. Of course, Strudwick wanted those too, and found herself chasing self-worth with a Debenham's store card.

What is the most expensive bit of clothing she bought? "God ... daft. It'd be a coat for £140. I wasn't spending it all on Prada and whatever. It was all quite small stuff. Debenham's and Next were my two biggest cathartic cards, if you like. They're the ones I miss." That may not be that much for a coat, but it was for someone on her income, and when combined with £50 in Next, £90 in Sainsbury's, a trip to see her father in Cyprus for the first time in 29 years, a trip to Eurodisney with Jason ...

In Money, A Memoir: Women, Emotions and Cash (2006), Liz Perle recently argued that materialism in women often arises from a need to belong to a secure, "emotional middle class". Thus "we will go into debt, spend on impulse, save too little, [buy] luxuries we can't afford and simultaneously deprive ourselves of real necessities." We spend money to feel safe, in other words, which just chips away at the ground beneath our feet.

The ground was becoming increasingly unstable under Strudwick. On the surface, though, it did not seem so. She had a job in Eastbourne hospital as a staff nurse, and "absolutely loved it with a passion. Everything about it - the people, the clients, the different medical problems, working with different medical disciplines, the opportunities it gave me." She started part-time, then went full-time, then was promoted. In two and a half years her salary climbed from £16,000 to £20,000. But it was hard to juggle it with being a parent. Shifts began at 7am and daycare at 8:30am, so she would start an hour late, skip breaks and work extra hours on days off. She found that doing 12-hour shifts and "coming home by myself in the evening and getting ready to go back to work again the next day can be quite isolating as well - you can go for quite long periods of time without seeing your friends or other adults." She felt guilty about the time she was not spending with her son, so she spent more on Christmas, birthdays and days out. Looking for comfort, she bought "clothing, footwear, perfume, food. Lunch. Day out with a friend. And thinking, as well, that I was wonderful - that I could spend all this money, because I was this fabulous nurse. And I wasn't at all, really. I was just struggling, ill-advised and ill-educated."

She tried to work nights for extra cash, "but then you end up unsafe. You can't be an effective nurse, you can't be an effective parent." The wards were sometimes understaffed, and the nurses were always aware that media attacks on the NHS filtered into the way patients treated them and affected morale; days like one, in particular, when they had four deaths, began to take their toll. She had started a relationship with a friend she had known for 10 years, but after a year that broke up. That was her trigger.

"Maybe it's being a single parent, a strong Cypriot woman, but we've all got a face, you know what I mean? I was like, 'I'm fine, everything's fine', and then it was like a domino effect. I just crashed, in my abilities as a mum, as a nurse, as a person." In May 2005, she went to her GP and said she needed help. He diagnosed stress and clinical depression, and ordered sick leave.

Staying at home, on statutory sick pay, then, after two months with no income at all and on incapacity benefit, didn't improve things. She felt immensely guilty, a failure in the eyes of her colleagues, whom she would bump into whenever she had an appointment with the mental health services. She drank, three or four bottles of vodka a week. She spent more. "Spending is very, very addictive. It's definitely an adrenaline rush, as well." And then she got a letter from the tax credit agency. Strudwick would be first to admit that she finds applying for benefits an incomprehensible morass, but obviously Revenue & Customs find this, too. Last June, they admitted they had miscalculated child tax credits, overpaying recipients by more than £2bn. They demanded Strudwick repay £4,200 that she didn't have - then, on investigation, revised it up to £9,500. Her debt shot up to nearly £50,000. Unpaid utilities meant that the final bankruptcy statement had her owing £52,000.

She had told no one about the extent of it, but eventually, sleepless and permanently panicky, she confessed to a friend, who marched her down to the Citizens' Advice Bureau. (She agreed to do this interview partly because she wanted to publicise their rescue work, partly because she wants to urge people to get help early.) They advised her to seek bankruptcy, rather than an IVA; with her doctor, they advised a year's sick-leave, on benefits, because all surplus would be taken by receivers if she worked, and she would earn effectively the same amount. The day she was made bankrupt, she stopped drinking. "I feel a fool. I feel irresponsible, reckless. I've let myself down. And Jay. I'm desperate to go back to work, but I'm not in a financial position to go back to work. Which is madness."

There is a little ground for hope. Because so much debt seems down to basic financial illiteracy, the Financial Services Authority is piloting a national strategy for financial capability, which aims to ensure there is more education in schools, colleges and organisations that work with the young and excluded. Meanwhile, Strudwick is, for the first time in years, living within her means. I ask her when she has been happiest, and she wells up with tears. "Living with my grandparents. And now - this probably seems quite silly - but now, living with nothing. Because I'm back in control of it, and I know what's going on. I know I've only got £20 for shopping. The knowledge is all in there - of what to do with the chicken to make it last all week. I lost that, and now I'm getting it back again. I'm growing my own vegetables, using the cooking apples that are falling from the tree. Sewing clothes instead of going out and just buying them." Which does not mean it is easy. She has good days and bad, resentful ones. Her son, more solicitous than his 12 years might warrant, was worried about her talking to me, and she knows that after this she will have to go out for a walk with him to clear her head, maybe on the Downs. Another cheap coping mechanism. She smiles a wan smile.

· National Debtline: 0808 808 4000 The Citizens' Advice Bureau (www.citizensadvice.org.uk) has numbers for local bureaux. Consumer Credit Counselling: 0800 138 1111.

Insolvency: The options
Bankruptcy or £325 if you are claiming benefits, and once it has been granted, the debtor's assets can be sold and the proceeds distributed among creditors. This usually refers to property, shares, valuable antiques, and some pensions. Cars must sometimes be forfeited if the official receiver believes they can be replaced with cheaper alternatives; if the bankrupt's home acquires equity in the three years after bankruptcy, it can still be sold.

An application for bankruptcy must be made through the courts. It costs £475, or £325 if you are claiming benefits, and once it has been granted, the debtor's assets can be sold and the proceeds distributed among creditors. This usually refers to property, shares, valuable antiques, and some pensions. Cars must sometimes be forfeited if the official receiver believes they can be replaced with cheaper alternatives; if the bankrupt's home acquires equity in the three years after bankruptcy, it can still be sold.

It is illegal to apply for credit of more than £500 without telling the lender of your status - and you are unlikely to get it, which makes it difficult to be self-employed or run a small company, for example. Those who work in financial services and some types of solicitors cannot continue working in these fields.

As of the Enterprise Act of 2004, bankruptcy is generally lifted after a year; if the bankrupt is judged to have been extremely profligate, however, this term can be extended. Details of the bankruptcy remain on credit histories for up to six years; even after this period, however, many mortgage applications require that you declare whether you have ever been bankrupt.

Individual Voluntary Arrangements
These are legal contracts agreed between the debtor and the creditors, via an insolvency practitioner, whereby a manageable percentage of the debt is paid back over a fixed number of years. The remaining amount is written off. It is expensive to apply for - £4,000 and upwards - and these fees are added to the debt that must be paid off.

IVAs are useful if the debtor wants to be able to keep a company going, or if their work forbids them from going bankrupt. Debtors can retain a bank account, and do not have to declare their IVA to the bank, but they may still have to sell their homes and give the equity to their creditors. Records of IVAs also appear on credit histories for six years.

Deborah Taylor Entered into an IVA, June 2006
I started off as a freelance book editor, but I was soon desperate to be out of it, so I retrained as a web designer and landed lucrative contracts with Reuters, UBS Warburg and the Sports Council, earning up to £60,000 a year. Then the dotcom crash came along and put paid to that. Getting back into publishing is incredibly difficult once you've left, but eventually I got a job with Pearson Education, as senior acquisitions editor for web design books. Four months later, I was made redundant, which completely threw me again. I was really stuck after that. I didn't know what to do with myself.

I was freelancing a bit, doing maternity cover, but really struggling. Finally, I decided to retrain, in neuro-linguistic programming, so I could start a business as a personal development coach. I was in my late 30s by then.

I've been with my partner for nine years. His business is in London, but I hated the city and wanted to move. It had to be somewhere we could travel to easily, otherwise my relationship was going to be gone as well. I decided on Portsmouth. That's when everything started to go downhill - I just underestimated what a big change it was going to be, not having any public transport, being so far away from all my friends. I felt isolated and displaced. I'd had a rough few years one way or another and I'd lost a lot of confidence. Anyway, I just couldn't get the business off the ground. And because I kept trying to make it work, I wasn't actually earning any money.

Initially I lived on the money from selling my flat in London, but it ran out. My biggest mistake was not getting a job at this point. I probably had about £40,000 of debt, maybe a little bit more. It was bad, but not so bad that it was catastrophic in comparison with what I'm capable of earning. But every month it seemed that I was using a credit card or a loan to pay for myself. And the more debt I got in to, the more stultified I became by the whole situation. That was the worst thing; you'd think it would galvanise me into action, but it seemed to make me feel even more stuck. Everything started to feel very pointless. Another 10 or 15 quid here and there is irrelevant when you're £40,000 or £50,000 in debt, which in my case didn't include the mortgage.

And I wasn't telling anybody. Socially I was keeping my end up by saying, "Oh yes, everything's going fine", so nobody really knew, and it just became this horrible secret.

I wish they had pulled the plug much sooner. The worst loan was the one I was given last September, when I was about £80,000 in debt, not counting my £133,000 mortgage. I was completely desperate. The bank didn't ask me any questions about what I was earning, where I was working, what I was doing - and lent me £25,000, then gave me a credit card for nearly £5,000. That was incredibly irresponsible. I was totally amazed. And I wish to God that had never happened because that pushed me over the £100,000 mark.

Once the credit ran out, everyone came to me asking for their money. I knew that was going to happen - that was an incredibly stressful time. I was getting phone calls every half hour, at home. I was almost not functioning. I couldn't eat, I couldn't sleep. My world had literally just fallen apart.

I didn't realise there was this thing called an IVA. I thought I'd just have to declare bankruptcy and two weeks later someone would come round and my house would be gone. Initially I didn't even know the National Debtline existed - I mean, that's not advertised on your credit card bill, is it? National Debtline were absolutely fantastic. I think the message should be out there that there are places to go for help, and that you should get help as fast as you possibly can. If you let it go, you'll probably find that you lose control of the situation in the way that I did.

Mark Davis Declared bankrupt, Jan 2006
After a four-year university course and a further year of study, I was left with debts in credit cards, overdrafts and student loans of £33,000.

When you first go to university you don't really know how to manage your money. It's not something you're taught at school. And university isn't just for study. You go to enjoy yourself as well. I wasn't extravagant - I couldn't afford to be - but I had a social life. I was just a normal student, really. I did work experience, and had one holiday, a week in Ibiza. I worked for a summer to save up for that.

At the end of my studies I was in a position where I had to get a good job. There was no question of sitting around for a year while I decided what I wanted to do. I worked in insurance for about six months, then left with a couple of colleagues to set up an insurance brokerage. We started out telemarketing from their flat, using the BT phone book, and eventually employed 17 staff and had a turnover of about £500,000 a year. So it started off very well. But then the industry changed. The FSA regulated it and there was lot of consolidation by bigger companies. Smaller companies were edged out of the market. As with most small businesses, I had had to personally guarantee all credit, and I was liable for a potential £450,000 as the company became insolvent. I decided to resign and petition for bankruptcy.

But it was too late to save my relationship. I was spending a lot of time at work, and obviously I was very stressed. She was a student, and had debts and a job of her own, and there wasn't the time or the money for fun. We couldn't afford to get married and have children and that was a real sticking point. It wasn't like she went, "Oh God, you're bankrupt, I'm leaving you." It was more that the troubles from the business and the stress of the bankruptcy just wore away at us. All the emotions you experience get magnified. Things hit you harder than they would normally. We split up in June.

Bankruptcy certainly serves a purpose. It lets you start again, but it doesn't wipe out all your debts - I've still got my student loan. I'm working as a data analyst at the moment, but also setting up a new website blog.piggybankrupt.co.uk) talking about my experience of bankruptcy and providing information and resources. I want to help people with debt problems to avoid the same fate as me.