Personal debt experts, MoneySolve fear for the future as bankruptcy applications reach record numbers. Predictions of an impending crisis aim to warn consumers who think bankruptcy is an easy way out. However it can have some far reaching consequences that may make the average person think twice before applying for one.
Liverpool, England (
Insolvencies were up 1.7% to over 25,000 based on figures from the previous quarter. By the end of 2008, more records are set to be broken as the number of bankruptcies is expected to reach 130,000. Consumer debt is expected to reach £1.5 trillion by 2009. The situation seems to be a lot worse than the official figures show. An industry insider recently said, "For every consumer that declares their bankruptcy, there's someone else who finds alternative means to address their debt." They added, "The credit crunch is going to continue making this situation worse."
Compared to figures from the same period in 2007, the number of insolvencies is down. This is attributed to an increase in IVAs or Individual Voluntary Arrangements. These were marketed as an alternative to bankruptcy, allowing debtors to write off a certain portion of their debt.
This drop in the number of insolvencies is expected to be temporary as banks have recently made it more difficult to apply for an IVA. We can expect to see a number of alternatives to bankruptcy in the coming year that will provide debt solutions without the stigma associated with bankruptcy.
In contrast to the difficulty in acquiring an IVA, applying for bankruptcy is now easier than ever but is it really the right decision? Is it the only way to solve
The procedure for becoming bankrupt has become very straightforward and is seen by many as an easy way out of debt. All that is needed to be declared bankrupt is to:
- Complete declaration forms available from local county courts.
- Provide details of all assets owned and all debts owed.
- Pay the associated court fee and administration deposit.
The declaration can be processed immediately and the debtor can be declared bankrupt the same day.
Following this, the debtor will be issued with a Bankruptcy Order. They will then be required to meet their local Official Receiver. The role of the Official Receiver is to review the circumstances and causes of the
The duration of
This all sounds easy and it is understandable why many debtors consider bankruptcy as a solution to their debt problem. However the negative, long lasting consequences of bankruptcy need to be considered as they can have a lasting impact on the debtor and their family.
The trustee associated with the debtor's bankruptcy has three years to deal with any property owned by the debtor. During these three years the trustee can:
- Sell their property
- Have a charging order issued. This means that any money generated by the property, through rent or sale, will got to the trustee.
- Arrange terms for the debtor to buy the trustee's interest in the property. These terms can be arranged with those with whom the debtor shares ownership of the property.
Bankruptcy terms usually last one year. However they are at risk of further action, in terms of assets, for a further two years. Many people forget that after the expiration of their bankruptcy order, their home, or their share of it, remains in the hands of the trustee.
At worst this can mean their house is sold regardless of their bankruptcy status. The consequences of this can be devastating for the debtor's family family. As mentioned above, this can also be the case if they own a share in a property.
Bankruptcy Restriction Order (BRO)
A BRO is an extension of a Bankruptcy Order that can be imposed on the debtor at the end of the bankruptcy terms, which is usually one year. A BRO is issued if the Official Receiver deems that the debtor has been irresponsible during the terms of their bankruptcy.
Examples of irresponsible behaviour could be:
- Gaining more debt during their bankruptcy period.
- Gaining more debt with the intention of applying for bankruptcy.
- Selling assets and giving the money to family members.
Consequences of a BRO
- The person cannot be a director of a company.
- Creditors must be made aware of the debtor's bankruptcy status if they apply for credit for more than £500.
- Any trading partners must be told about past bankruptcy including the trading name used when declared bankrupt.
- These restrictions can last between 2 and 15 years.
The relative ease that is associated with applying for bankruptcy may be related to the rise in insolvencies in the first quarter of 2008. Initially bankruptcy may seem like an easy way to get out of debt. However complications can, and do, arise from this kind of debt solution. Will the result of bankruptcy be worse than the debt? This all depends on the personal circumstances of the debtor. Careful consideration and advice from a
ING’s new survey demonstrates the central role life insurance plays in a comprehensive financial plan, including the important role of wealth protection. Financial-planning experts say that inadequate life insurance can be swiftly disastrous to families that don’t properly anticipate and assess the impact death of a spouse or partner can have on short- and long-term finances.
Windsor, Conn. (
“The new survey further clarifies the savings and wealth protection needs of Americans. The insight into consumers’ perceptions about their financial future and the wide-ranging reasons for saving money and having adequate life insurance may even seem contrary to popular assumptions about people and their money,” said Catherine Smith, CEO, ING U.S. Insurance. The wide-ranging survey by Ipsos Public Affairs of more than 1,000 adults revealed Americans’ contemporary attitudes and thinking on protecting their financial future and on life insurance, traditionally part of working people’s financial plan.
The survey demonstrates the central role life insurance plays in a comprehensive financial plan, including the important role of wealth protection. Financial-planning experts say that inadequate life insurance can be swiftly disastrous to families that don’t properly anticipate and assess the impact death of a spouse or partner can have on short- and long-term finances.
“As Baby Boomers’ financial needs have evolved, we see the heightened importance of risk protection combined with wealth creation,” Smith said. “Insurance products can help provide an important protective wrapper around retirement savings. This insurance wrapper effectively manages a diversity of risks and allows consumers to enter their retirement years with more confidence. Bottom line — life insurance has become the forgotten foundation of a long-term, comprehensive financial plan.”
Among the most interesting findings of the survey:
- The top scenario Americans say would most negatively impact their financial future is having their savings stolen because of fraud/theft (77% say it would have an extremely or very negative impact). The second scenario Americans believe would most negatively impact their family’s financial future is their death or the death of their spouse or partner (67%).
- Of 15 events or scenarios listed, falling home prices, a stock market crash, Social Security becoming insolvent, an economic recession, a pay cut and higher interest rates on loans and mortgages were all cited as having less of a negative impact on their family’s financial future than their death or the death of their spouse or partner.
- Despite life insurance’s low profile compared to prevailing popular focus on wealth accumulation and investing, nine in 10 survey respondents said that people in their situation should have life insurance, although the reasons for doing so often vary between generations.
- Nearly a quarter of the 86 percent of people who thought they should have life insurance, do not have it.
- A significant majority of Americans (58%) say they do a better job saving and protecting their money than their parents do or did; and an even greater majority (65%) say they do a better job saving and protecting money than their friends and acquaintances.
- Younger Americans tend to look to life insurance for taking care of a wider range of needs compared with older Americans, including funeral costs, children’s future education costs, and several years of household expenses, indicating that they see life insurance as playing a bigger role as far as wealth protection and wealth accumulation than do older Americans.
- More Americans would rather go bungee jumping or stand in front of a crowd to make a speech than talk about life insurance, but more would rather talk with an agent about life insurance than sit through a job performance review with their supervisor, fill out a college application, or deal with a medical insurer about a planned surgery.
- When it comes to advice and insight on life insurance issues, many respondents who have life insurance primarily consulted with an insurance agent or financial advisor about how much life insurance they needed (33%) — significantly more than those who consult with friends or family members or who simply chose a standard life insurance option available through work.
According to LIMRA International’s 2005 Trend in Life Ownership study, nearly 68 million Americans have no life insurance coverage; yet according to the ING survey, most Americans (71%) feel it is something they should not do without. Some of the most common misperceptions about life insurance are related to coverage amounts. Eight in 10 Americans say that they would need one or two year’s worth of household expenses to be paid by life insurance, while two-thirds say they would need at least 10 years of household expenses for their family. However, many financial advisors recommend families have more life insurance than that, depending on individual situations and financial circumstances. Annual budgetary items, such as mortgage payments, child care, insurance and basic living expenses, are all important factors to include.
“With term life rates continuing to drop and life expectancy rising, life insurance is the most affordable it’s ever been,” said Smith. “Americans need to leverage experienced life insurance professionals or the internet to find a product that best suits their needs and budget. It is as simple as getting any other form of insurance and just as essential to adequately protect your family and your assets.”
ING offers helpful tips and tools for people exploring life insurance, including a do-it-yourself
Commissioned by ING and conducted by Ipsos in late 2007 and early 2008, the ING Life Insurance Study included over 1,000 randomly selected participants. The data are weighted to ensure the sample regional, age and gender composition reflects the actual U.S. population, and the margin of error is +/- 3.1%.
ING is a global financial institution of Dutch origin offering banking, investments, life insurance and retirement services to over 75 million private, corporate and institutional clients in more than 50 countries. With a diverse workforce of over 125,000 people, ING comprises a broad spectrum of prominent companies that increasingly serve their clients under the ING brand.
In the U.S., the ING (NYSE: ING) family of companies offer a comprehensive array of financial services to retail and institutional clients, which includes life insurance, retirement plans, mutual funds, managed accounts, alternative investments, direct banking, institutional investment management, annuities, employee benefits, financial planning, and reinsurance. Life insurance products are issued by ReliaStar Life Insurance Company (Minneapolis, MN), ReliaStar Life Insurance Company of New York (Woodbury, NY) and Security Life of Denver Insurance Company (Denver, CO). Only ReliaStar Life Insurance Company of New York is admitted, and its products issued within the state of New York. All are members of the ING family of companies. ING holds top-tier rankings in key U.S. markets and serves over 14 million customers across the nation. For more information, visit
Ipsos Public Affairs is not affiliated with ING.
Philip Margolis, ING
phil.margolis @ us.ing.com
Chuck Eudy, ING
chuck.eudy @ us.ing.com
PALO ALTO, Calif. (
Financial Engines, a leading provider of independent investment advice
and managed accounts, today released The Financial Engines National
401(k) Evaluation, a new report that assesses nearly one million
401(k) participant portfolios (964,118) to determine how well Americans
are handling their 401(k) plans. The report also estimates the costs
associated with common investing mistakes. According to the National
401(k) Evaluation, 69 percent of participants in the study have 401(k)
portfolios with inappropriate risk and/or diversification, 36 percent
hold high concentrations of company stock, and 33 percent fail to
contribute enough to receive the full company match. While groups of
participants are taking full advantage of their 401(k) plans,
participants with lower salaries, lower plan balances, and those closer
to retirement tend to make the most costly mistakes.
“Millions of Americans will rely on their
401(k)s as a primary source of income in retirement, and until now, it’s
been challenging for plan sponsors to determine which participant groups
are doing well and which groups need the most help,”
explained Jeff Maggioncalda, president and CEO of Financial Engines. “Throughout
this report, the data show that those who need the 401(k) the most are
benefiting from it the least. It is our hope that 401(k) plan sponsors
and providers will use this data to inform plan design, ensuring that
the 401(k) works well for all employees.”
Older Participants More Likely to Have High Company Stock
According to the report, 36 percent of participants in plans with
company stock as an investment option hold more than 20 percent of their
portfolios in unrestricted company stock. Eleven percent hold between
10-20 percent in company stock, and 53 percent hold less than 10 percent
of their portfolios in unrestricted company stock.
In general, the older the participant, the more company stock they are
likely to hold. Forty-three percent of those over age 60 hold more than
20 percent of their 401(k) portfolios in company stock, compared to only
28 percent of those under age 30. Extreme company stock concentrations
follow a similar trend, with 25 percent of participants over age 60
holding portfolios with 50 percent or more invested in company stock,
compared to just 13 percent of those under age 30. Fifteen percent of
participants over age 60 hold 80 percent or more of their portfolios in
Holding high company stock concentrations has a negative impact on the
expected growth of a portfolio, according to the report. Portfolios with
more than 20 percent in company stock could expect an average of 18
percent less projected retirement wealth after 20 years, compared to
those holding less than 10 percent in company stock (given the same
starting balance and assuming no future contributions).1
In addition, portfolios holding 80 percent or more company stock can
expect an average of 42 percent less projected retirement wealth after
20 years than those holding less than 20 percent in company stock (given
the same staring balance and assuming no future contributions).2
“Despite recent company collapses and market
volatility, many Americans still discount or underestimate the high risk
levels associated with holding high concentrations of company stock,”
explained Maggioncalda. “Unfortunately, the
older employees holding the highest amounts of company stock have the
least amount of time to recover if their company’s
stock happens to take a hit. Many participants don’t
realize that holding large amounts of company stock is actually a drag
on the long-term growth of their portfolios.”
Lowest Salaried Participants Making the Worst Investing Mistakes
While company stock is often a factor in participants not having
appropriately diversified portfolios, participants are making other
investing mistakes that are costing them projected retirement wealth. Of
the 69 percent of participants in the report with inappropriate risk or
inefficient portfolios, 38 percent have very risk-inappropriate or very
inefficient portfolios. Just over thirty percent have portfolios that
are both risk-appropriate and efficient.
Participants earning the lowest salaries are the most likely to make
investing mistakes. More than half (53 percent) of participants with
annual salaries below $25,000 have portfolios with very inappropriate
risk and/or diversification, compared to 33 percent of those earning
more than $100,000 per year. Common reasons for inappropriate risk or
diversification include high money market or stable value
concentrations, age-inappropriate portfolios (i.e. too conservative for
younger employees or too aggressive for older employees) or
concentrations in a single asset class.
Investing mistakes may cost participants real money in retirement.
According to the report, portfolios with very inappropriate risk and
diversification could expect to have 22 percent less projected
retirement wealth after 20 years, compared to those with appropriate
risk and diversification (given the same starting balance and assuming
no future contributions).
Low Contributions Most Common Among Younger, Lower Salaried
When it comes to 401(k) savings, 33 percent of active participants fail
to save enough to receive the full company match. Sixty percent save
enough to receive the full employer match but are saving below the IRS
or plan limits, and only 7 percent of all active participants save
enough to come within $500 of the IRS or plan maximum allowed. Still,
many participants are saving at healthy rates, with 25 percent of the
entire sample saving 10 percent or more of salary. Across the sample,
the most common employer match was 50 cents per dollar up to six percent
Younger participants and those with lower salaries or lower account
balances tend to save the least. Nearly half (48 percent) of those under
age 30 are failing to save enough to receive the full employer match,
compared with 35 percent of those in their 30s, 31 percent of those in
their 40s, 26 percent of those in their 50s and 28 percent of those over
In terms of salary, 63 percent of those earning less than $25,000 per
year fail to save enough to receive the full employer match, compared to
24 percent of those with salaries between $50,000 and $75,000 and 12
percent of those with salaries greater than $100,000 per year.
Saving at least enough to receive the full employer match has a
significant impact on projected retirement wealth. For example, if the
average participant not saving enough to receive the full employer match
(saving 1.9 percent of salary) and a median account balance of $5,872
continued contributing at that same rate and receiving the partial
employer match, that participant is projected to have approximately
$46,800 after 20 years. However, if they increased their contribution to
6 percent of salary (enough to receive the full typical employer match
in the report), the participant is projected to have approximately
$120,900 after 20 years – a difference of 158
“While this report outlines the challenges
facing today’s plan sponsors and participants,
plan sponsors can have a dramatic impact on participant portfolios
through making plan design changes, such as adopting the Automatic
401(k),” explained Maggioncalda. “While
most plan sponsors typically apply the Auto 401(k) to new hires,
applying automatic features to existing participants who have made
investing mistakes will turn the power of participant inertia to the
benefit of participants, increasing their chances of achieving their
About The Financial Engines National 401(k) Evaluation
The Financial Engines National 401(k) Evaluation looked at 964,118
401(k) portfolios from 82 mostly large plan sponsors across five 401(k)
providers, and rated each portfolio in terms of Risk and
Diversification, Company Stock and Participant Contributions. Using the
metaphor of a traffic stoplight, each participant portfolio was given an
evaluation of red, yellow, or green. A red stoplight indicates that the
participant should definitely consider making a change to their 401(k),
a yellow stoplight indicates that the participant might consider making
a change, and green indicates that the participant is taking good
advantage of their plan options. Portfolios were then analyzed and
segmented by age, salary, and account balance to determine which groups
of participants were making the most of their 401(k), and which were
making the most mistakes. In addition, Financial Engines calculated the
expected growth rate of each portfolio to quantify the impact of
participant investment and savings decisions on estimated wealth at
Copies of the report can be downloaded at no charge at
About Financial Engines
Financial Engines is a leading provider of independent investment advice
and managed accounts to defined contribution plans. Founded by Nobel
Prize-winning economist, William F. Sharpe, Financial Engines serves
millions of employees at many of America's largest corporations.
Patented advice technology and institutional-quality investment
methodology allow Financial Engines to offer an array of advisory
services to meet the needs of a wide range of investors. For more
information, please visit
Financial Engines® is a registered trademark
of Financial Engines. Advisory and sub-advisory services are provided by
Financial Engines Advisors L.L.C., a federally registered investment
1 Calculations use expected growth as a way to
quantify the impact of participant investment decisions on retirement
portfolio outcomes. The expected return of a portfolio is defined as the
mean return expected over a single year for that portfolio. Expected
growth, on the other hand, is defined as the median return expected over multiple
years for the portfolio. The relationship between the two concepts is:
Expected Growth = Expected Return – ½
(portfolio variance) Thus, the difference between expected growth and
return is one-half the variance of the portfolio, which can be viewed as
a “risk penalty”
that applies to portfolio growth. Using expected growth to compare
portfolios across individuals allows one to explicitly recognize the
risk-reward tradeoff inherent in investments. In contrast, ranking high
expected return portfolios as “better”
would ignore the fact that more risk is generally required to achieve
higher expected return. Keeping expected return constant, an increase in
risk by itself will decrease the long-term growth rate of a portfolio.
Expected growth does not represent actual results nor adjustments
made to a portfolio over time. Expected growth is not a guarantee
of actual future returns and a portfolio with higher expected growth may
not be better for all investors in all cases.
2 Projected retirement wealth estimates
generated by compounding the average expected growth rate of two
different portfolios over 20 years (net of inflation) and comparing the