Students are swelling the soaring list of bankrupts

Students are swelling the soaring list of bankrupts

In the final three months of last year, 10,271 individuals in England and Wales became insolvent, the Department of Trade and Industry revealed last week. That is 29% up on the same period in 2002 and the highest figure since the recession days of 1993.

Just days earlier, it emerged that the number of students writing off student loan debts by declaring themselves bankrupt more than tripled in 2003. According to the Department for Education and Skills, 899 students and graduates took the drastic step of becoming insolvent last year, compared with 276 in 2002.

Some of them have taken advantage of a loophole in government legislation allowing student loan debts to be cancelled out by bankruptcy - something that was highlighted by Jobs & Money in a cover story article last June.

Credit card fiend Tom Smith won't be joining their number. The 17 year old came to prominence this week following an epic spending spree that left him with a credit card bill of almost £12,000. He will be kept out of the bankruptcy courts, however, by his father, a wealthy banker, whose credit card he borrowed.

The rise in student bankruptcy has come about after the government's Insolvency Service issued rules back in May confirming that student loans are debts that can be written off in bankruptcy. Until.....continued below

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Its perhaps not surprising that growing numbers of students buckling under the weight of horrendous debts have swallowed hard and decided to opt for bankruptcy, thereby eliminating a burden that many thousands of other graduates will carry for years.

The DfES said this week it intends to close this loophole via the Higher Education Bill. It says that, subject to the passage of the Bill, the exclusion of student loans from bankruptcy will come into force on September 1. But, based on last year's figures, we are almost certain to see several hundred hard-up students declaring themselves bankrupt before then in order to walk away from other debts such as credit card borrowing.

The appeal of wiping out your debt burden and starting afresh is obvious but the advice of many experts when it comes to bankruptcy is don't do it - or at least think long and hard. "Our advice is to think very carefully," says the National Union of Students. "We suggest people get advice. It's a huge, huge decision." It points out that losing your credit rating just as you leave university is not a good move. However, in a swipe at the government, the NUS says ministers "need to consider why are people doing it rather than just saying: 'Let's stop them doing it.' "

Many people would say the government seems to be sending out mixed messages on the issue of bankruptcy. At the same time as it is clamping down on students, it is bringing in new rules aimed at reducing the stigma attached to bankruptcy. Provisions in the new Enterprise Act coming into force in April will reduce the time before debtors are discharged from bankruptcy from three years to one. Some say this could make going bankrupt more attractive to those in debt.