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Personal insolvency figures still show year-on-year rise
Written by on 11 August, 2010Official statistics showing personal insolvency figures in the UK for the second quarter of 2010 were released on Friday 6th August, revealing a 5% rise compared to the same quarter in 2009. The year-on-year increase is a continuation of experts predictions, despite figures dropping slightly from the last quarter’s record highs.
A total of 34,743 people in England and Wales alone became insolvent during the three months up to the end of June, the Insolvency Service told in their quarterly report. Though this figure is down a slight 2.6% on statistics revealed in the first quarter of the year, where insolvencies reached the highest level since records began, experts warn that we may be in for a second spike of insolvency figures.
The total figure for England and Wales was made up of 14,982 bankruptcies, 13,466 Individual Voluntary Agreements (IVAs), and 6,295 Debt Relief Orders (DROs). The number of bankruptcies was down 20.6% on the corresponding quarter of last year, while the number of Individual Voluntary Agreements was up 10.2% compared to the same period in 2009. An IVA is an arrangement with those that are owed the money to write off a portion of the debt, while bankruptcy takes the form of a court order where assets are sold to repay creditors.
Debt Relief Orders, a fairly new alternative to bankruptcy, have also been available though they are not without their restrictions and eligibility criteria; for example, those with fewer assets, such as those who do not own their home or who have debts of less than £15,000. The number of DROs in the second quarter reached the highest level since they were introduced in April 2009, up from a total of 5,644 in the first quarter of 2010. This may explain the decrease in bankruptcies compared to last year, as individuals may be seeking other alternatives.
Interestingly, 85.7% of bankruptcies from this latest quarter were made on the petition of the debtor which suggests more and more people are choosing to declare themselves bankrupt rather than creditors taking out the petition in order to recover the debt.
Despite the first decrease in insolvency figures for this year, experts looking at the bigger picture are concerned for the continued rise compared to the figures from 2009. As the third anniversary of the credit crisis emerges, it is looking like there may be a second spike of insolvencies still to come.
While it may be promising to see figures dropping for the first time in 2010, the outlook is not much better than after the first quarter’s worrying statistics as experts are suggesting this may be the lull before the storm; the public spending cuts, increases in tax and continued uncertainty in people’s employment prospects could all push bankruptcies back up again to create a second spike in personal insolvencies. Interest rates on credit card debt also continue to rise, which could be a factor in the results, experts have suggested.
The report also includes insolvency records for Scotland and Northern Ireland, though these are covered by different legislation. Northern Ireland saw a similar rise in insolvencies for this latest quarter, with a rise of 13.6% compared to the same time period of 2009.