Bankruptcy is seen as the easy way out for those who have run up debts and who don’t want to pay what they owe.
But the reality is that it only offers a solution to those rich enough to be able to afford the £700 fee.
Many who should go bankrupt are simply too poor to do so.
The most vulnerable – those pushed into a debt spiral by circumstances beyond their control as opposed to lavish spending sprees – are the ones who are struggling and trapped.
Real people, like Jo, who has spent three years fighting her debt nightmare, moving home frequently to avoid threats, phone calls and visits from debt collectors, because she can’t afford to go bankrupt.
“I’m just a hard-working person who got ill, then was made redundant and ended up in a hideous debt spiral, trying to make ends meet,” says Jo, 59, from Kent.
She had a good job in sales, earning £40,000 a year, a nice house and a car until she was diagnosed with breast cancer three years ago.
“I had to take three months off work to have an operation and then have a course of radiotherapy,” Jo recalls. “I just got back to work and they announced redundancies and my name was on the list.”
Jo lost her income overnight but did not panic as she thought she would easily get another job.
But she struggled and ended up using her credit card to keep up with her mortgage repayments and other bills.
“Eventually I got another job but it was much lower paid and I just couldn’t keep up with my mortgage.
“I came back from a hospital appointment to find a repossession notice on my door,” she says.
Two years after her home was repossessed she was hit with a demand from her building society for £40,000 – the shortfall on her mortgage after her property was sold.
Jo says: “This came at exactly the wrong time, in March last year.
“It was just as I’d found out my cancer was back but with complications as it has travelled to my lungs. I now have to go regularly for hospital visits and can’t hold down a full-time job.
“I do have two part-time jobs but I’m still not breaking even and I can’t afford to pay off any of my debt, now £55,000.”
Jo is stuck. She cannot afford to go bankrupt, take on a debt management plan or IVA and does not qualify for a Debt Relief Order. And she is trying to cope with a life-threatening illness. She is not alone.
Research from Citizens Advice shows that almost half of people for whom bankruptcy is the only option simply do not have the cash to take it.
Peter Tutton, credit and debt policy officer at the charity, says: “We see thousands of people every year who are too poor to go bankrupt, even though this is the only realistic option for them to deal with their debt problems.
“It’s got even worse since bankruptcy fees went up sharply recently. Debt relief orders (DRO) have helped, but they don’t solve the problem for people with debts over the £15,000 DRO limit who can’t afford the £700 it costs to apply to be declared bankrupt.
“Day in, day out, CAB advisers see people in desperate need of protection from creditors and a fresh start who are not eligible for a DRO.
“We think it’s high time the DRO debt limit was reviewed. It was set at £15,000 nearly eight years ago and if it had risen in line with inflation it would now be around £20,000.
“Being able to pay the bankruptcy fee in instalments could also help a lot of people, as long as debt relief kicked in from the first payment.
“But the Government also urgently needs to improve the system for waiving bankruptcy fees so that more people in the most dire need can be helped.”
The latest insolvency figures are due out on Friday.
The figures for bankruptcies are expected to dip because more and more people cannot afford the fees, while the number of people taking out IVAs and DROs increases.
Experts say these people suffer immense stress, are left languishing and vulnerable, are at the mercy of debt collectors and often have nowhere to turn.