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Life in Debt the Profile of CAB Debt Clients in 2008

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Life in Debt the Profile of CAB Debt Clients in 2008 CAB briefing February 2009 A life in debt The profile of CAB debt clients in 2008 Key findings: In July 2008, 52 Citizens Advice Bureaux in England and Wales surveyed 1,407 new debt clients. We found that: I On average CAB debt clients owed £16,971 in 2008, two thirds higher than in 2001 . I More than half of the clients in 2008 had four or more priority debts, such as mortgage or rent arrears, fuel bills or council tax arrears. I One client in ten had ten credit debts or more. I Forty five per cent of the homeowners had mortgage or secured loans arrears in 2008, up from 30 per cent in 2004. I Thirty per cent of the homeowners spent half or more of their monthly income on housing costs. I Two thirds of the homeowners with mortgage or secured loans arrears were in priority need for rehousing. I Forty three per cent of the CAB debt clients in 2008 were in fuel poverty because they spent more than 10 per cent of their income on fuel. I Half of CAB debt clients were in water poverty because they spent more than three per cent of their income on water. I More than half of the clients (58 per cent) had no spare money to pay their credit debts. Inside K CAB debt clients’ profile Page 4 K Who advised the clients Page 4 K Income Page 4 K Expenditure Page 5 K Assets Page 6 K About the debts Page 8 K Reasons for debt Page 12 K Offers of payment to non-priority creditors Page 17 K How long would it take clients to repay their debts in full Page 18 K Eligibility for debt remedies Page 18 A life in debt I Clients who had spare money to pay their debts would take on average 93 years to repay them in full. I Nearly a third of CAB clients could be eligible for the debt relief order (DRO), a new alternative to bankruptcy which comes into force in April 2009. 2 A life in debt Introduction It has been four years since we last undertook a survey of CAB debt clients. The statistics Citizens Advice Bureaux have seen a dramatic from the 2004 survey proved extremely 100 per cent increase in the number of debt valuable by giving us a clear snapshot of CAB enquiries they have dealt with over the last debt clients. We wanted to see whether this 10 years. Debt is now the number one advice profile of CAB debt clients had changed in issue in bureaux, accounting for one in three 2008 in different economic conditions . of all enquiries . CAB advisers around the country are dealing with over 6,923 new debt problems every working day. Here are a few Methodology examples: This report sets out the characteristics of Citizens Advice Bureau debt clients in 2008. A lone parent with three children sought A 20 per cent random sample of bureaux in advice from a CAB in West Yorkshire. England and Wales completed a short survey She was suffering from serious form for all new debt clients seen in July 2008 depression and had attempted suicide for whom a financial statement was several times following domestic violence completed. In all, we have data from 1,407 and a relationship breakdown. She had a clients seen by 52 bureaux across England and number of debts, including a £706 fuel Wales. bill which was being collected at £10 per week via her pre-payment meter. The The questionnaire was divided into two parts. client could not afford her basic living The first one contained questions about the expenses and was falling into debt with client ’s personal circumstances. We also asked other priority bills. At the time of seeking clients to give us up to three reasons why they advice, she relied on her local church were in debt. The second part of the survey delivering food parcels and could not contained questions about the client ’s income, afford to meet her health costs. expenditure and debts. The information collected was taken directly from the client’s A Greater Manchester CAB helped a financial statement – a key document which woman who was unable to work sets out the client’s income from all sources, following an accident and was now essential expenditure, debts and repayment living on benefits. She needed advice offers and is used as a basis for negotiation about her debts. The client told the CAB with creditors. that she could not afford to put the heating on this winter and was terrified This report compares the results of the 2008 of getting further into debt. She had survey with two previous surveys of CAB debt borrowed a ski suit from a friend to clients in 2001 1 and 2004 2. We start by wear to keep her warm in her house. analysing the clients’ income and expenditure before looking closer at clients’ debt A man sought advice from a CAB in situations . We have used evidence from North East Wales about £60,000 of bureaux to illustrate various points throughout credit debts and mortgage arrears. His the survey. home was being repossessed. He had decided that the best way forward to clear his debts was to go bankrupt but could not afford the court fees to petition for bankruptcy (£495). 3 1 In too deep – CAB clients’ experience of debt , Citizens Advice, 2003. 2 Deeper in debt – the profile of CAB debt clients , Citizens Advice, 2006. A life in debt CAB debt clients’ profile The FIF debt advice project aims to increase the provision of free face-to-face debt advice More than 20 per cent of CAB debt clients to specific socio-economic groups and are lone parents. They represent 45 per cent geographic areas of high financial exclusion. of respondents with children; in comparison Nevertheless FIF advice is potentially open to 24 per cent of UK families were lone parent every individual, regardless of their income . families .3 In contrast, to be eligible for civil legal aid the client’s capital and income must be within 7 Twelve per cent of respondents were from certain limits . ethnic minority backgrounds, compared to 7.9 per cent of the UK population .4 As we shall see later in the report, the type of funding of the adviser could be significant in Twenty seven per cent of the respondents explaining some of the changes in the profile reported that they had a person with a of CAB debt clients in the last four years. disability or long term illness living in their households. This is a higher proportion than in the general population. The 2001 census Income found that 18 per cent of the population say At the time of seeking advice, the current they have a long term illness, health problem average net monthly income of the debt or disability which limits their daily activities or clients in the survey was £1 ,021 per month – the work they could do .5 less than two thirds of the average monthly household income in the UK at that time More than two thirds of respondents were (£1, 772 net per month ). 8 renting their homes, compared with less than a third of the UK population .6 Even taking into account inflation over the last few years, the average income in 2008 is For more information about the profile of CAB higher than in 2004 and the proportion of debt clients, please see Annex 1. respondents with income over £1,000 is higher. Twenty five per cent of the clients in Who advised the clients the 2008 survey had a monthly household income above £1,500, whereas only seven per Since we carried out research on CAB debt cent of 2001 CAB debt clients had an income clients in 2004, there has been a major new above £1,600 per month . source of funding for debt advice – the Government’s Financial Inclusion Fund (FIF ). There was a marked difference between the Nearly half of the debt clients (46 per cent) in average income of clients advised by LSC- the 2008 survey were advised by FIF-funded funded advisers and FIF advisers. The average advisers . Just under a third (29 per cent) were monthly household income of the clients advised by debt advisers funded by the Legal advised by LSC-funded advisers was £756, Services Commission (LSC). A further quarter compared to £1,102 for a FIF client and saw generalist or money advisers funded by £1,308 for clients of other money advisers. some other funding stream . 3 Office for National Statistics (ONS) (data is from the 2001 Census) statistics.gov.uk 4 ibid. 4 5 ibid. 6 ibid. 7 To be eligible for civil legal aid, someone must be entitled to certain means-tested benefits or have a gross income of less than £2,530 a month and have less than £8,000 capital. 8 Family Spending Survey 2006/07 , ONS, 2008, statistics.gov.uk A life in debt Type of income expenditure in order to find out if he/she is able to repay his/her non-priority debts . Figure 1: Types of income Housing costs – rent % 50% 6 It is not possible to be accurate about 4 s t expenditure on rent as the figures given on n e 40% the financial statements may be net of i % l c 0 housing benefit. However, if those who paid 3 f o 30% rent and did not have a benefit income of any % e 9 g kind are isolated, the average rent paid was 1 a 20% t £350 per month.
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