Battle against bankruptcy

But we shouldn’t be surprised. Our bankruptcy options, where people can be discharged after just one year of going bust, mean the incentive to stay in the black is not as strong as it could be.

On top of this, we have low interest rates and scores of companies that offer ‘unbeatable terms’ on credit cards and debt consolidation.

This is exactly what the government wanted. In a questionable strategy, our government wanted to imitate the US rescue regime. We now have more compassionate and benevolent laws that let people off relatively unscathed for over-borrowing, just like the Americans do.

We shouldn’t then be surprised that the new laws result in many more households spending beyond their means, getting into debt and going bankrupt – the same trends experienced on the other side of the Atlantic.

In fact, the problem has reached such a scale in the US that some states have set up initiatives to educate their citizens in an attempt to stem the tide of credit card debt.

In Tennessee, for example, the state education board is setting up an initiative to teach personal finance at schools along with mathematics and history.

The scheme hopes to develop good financial skills among Tennessee’s residents at an early age to help reverse the increase in bankruptcies, foreclosures and mounting credit card debt.

Ironically, when Peter Mandelson, the engine behind changing UK laws, was in the US falling in love with its more relaxed bankruptcy regime, the Americans were starting to think that perhaps they were being too lenient and wondering whether they should imitate the UK.

The government should be far more careful in adopting a benevolent regime. It should seek a happy medium where we do not throw people into a debtors’ prison for poor financial management, but neither do we give them a free rein to overspend recklessly.

Related reading