The number of people declared insolvent in England and Wales has fallen to its lowest level since 2005. Between January and March 2015, there were 20,826 personal insolvencies – the third quarterly fall in a row and a drop of almost 19% on 2014 figures for the same three months.
The Insolvency Service statistics showed a decline in all three forms of personal insolvency that are available in England and Wales: bankruptcy, Individual Voluntary Arrangements (IVAs) and Debt Relief Orders (DROs). The figures released by the Insolvency Service showed totals of:
- 4,209 bankruptcies (down 22.5% on 2014 levels)
- 6,213 DROs (a fall of 5% year on year and the third successive quarterly drop)
- 10,405 IVAs (down 13% from the end of 2014 and 24% year on year).
It’s clear that IVAs are still the most popular form of personal insolvency in England and Wales, accounting for around half of all insolvencies. However, the solution has been on a downward spiral since 2010 and the number of new IVAs is now at its lowest level since the start of 2009.
Andy Gorton, Managing Director of personal insolvency advice service, Bankruptcy Clinic, comments: ‘It’s interesting to see a sharp drop in personal insolvencies at the same time as reports that consumer borrowing levels are at their highest since 2008! Looking at the facts in a positive light, we could take them as indicators that the UK is finally moving out of the credit crunch and back into the black. On the other hand, it can’t be denied that household debt and poverty are still massive problems in many parts of England and Wales.’
Taking a different view of the matter, the drop in personal insolvencies could be a result of the recession itself, as when the economy fell apart in 2008, many people simply stopped borrowing. They paid off their existing debts and tried not to borrow any more…until now.
Changes in legislation could be part of the reason, too. ‘DROs have traditionally been seen as hard to access due to their strict eligibility criteria,’ says Andy. ‘For starters, you can’t have a DRO if you owe more than £15,000. This threshold will be raised to £20,000 from October this year, so some people might be holding out for the law to change before they apply. We could well see this form of insolvency becoming more popular from late 2015.’
A third factor to consider is that more people may be choosing to deal with their creditors informally, rather than resorting to personal insolvency procedures. In recent years, the Financial Conduct Authority has been putting more pressure on creditors to negotiate with their customers directly and agree new payment plans with them rather than pursuing them through the courts.
The introduction of Protocol Debt Management Plans (PDMPs) in October 2013 has also made informal debt management more popular. Like standard Debt Management Plans (DMPs), these are set up and managed by debt advice companies on the debtor’s behalf. However, firms that have signed up to offer PDMPs must adhere to certain rules around how fees are charged to debtors and payments are distributed to creditors, offering additional reassurance and security to both parties.
‘We’re certainly getting lots of enquiries about PDMPs these days,’ says Andy. ‘But whilst dealing with your debts informally might seem like an attractive option, there are various drawbacks that you’ll need to weigh up carefully before going ahead. Depending on your circumstances and the amount you owe, you may actually be better off with a personal insolvency solution such as declaring bankruptcy. This is why it’s so important to take expert advice on all your options from a reputable debt advice firm like Bankruptcy Clinic.’
Explore your debt management options today
The expert team at Bankruptcy Clinic are here to help you make the right decisions about dealing with your debts. We’ll discuss your situation in detail and explain which options are open to you. You’ll then be referred to an appropriate adviser at our debt management firm, MoneySolve Ltd, who’ll take things from there.
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