Global Recession: The ‘How’ and ‘Why’ of Bankruptcy in the UK

The effects of the recent recession affected the economies of nations all around the world. Effects began almost immediately in the United States, with residual effects resonating to countries closely tied to American financial interests, banking, and the housing market. As a result, the recession resonated throughout Western Europe, and exasperated problems in the United Kingdom. As the economy shrank, business slowed, and many people and businesses were forced to consider bankruptcy.

In the last quarter of 2008, the UK experienced startling economic numbers. This period witnessed more people filing bankruptcy than in last three decades, leaving thousands of citizens in the UK unable to pay off their debts. As businesses and other means of income began to disappear, the ability to pay off assets (like automobiles and housing) began to strain those in the economy who were force to take pay cuts or who became unemployed altogether.

During this quarter, according to one report, “In England and Wales, there was an 18.5 per cent jump in personal insolvencies. In total, 35,694 people declared themselves insolvent across the UK.” As the UK struggled through 2008 and into 2009, two-thirds of the people who declared bankruptcy were a registered for full bankruptcy declarations, while the rest were registered as Individual Voluntary Arrangements (IVAs), or “agreements which allow consumers to write down a proportion of their debts without having to suffer the full consequences of bankruptcy.”

By 2010, economists and politicians began to ask how long the recession could possibly last. Three years of economic recession is hard enough, but no one seemed to know when the economy would rebound, especially when the United States was still experiencing low numbers of growth and high numbers in unemployment. In every recession the UK experienced in its history, full recovery had occurred after nearly thirteen quarters of recession (from its peak). But this recession was different – after sixteen quarters and counting, the UK still had not recovered in 2012.

While the first signs of growing out of the recession occurred in the UK in early 2011, forecasts predict a full recovery will return sometime within 2014-2015. Given another major crash is avoided throughout the major financial hubs on the globe—New York, Tokyo, London—we may expect individuals and businesses to begin to leave the red and into the black. As stimulus packages began to be introduced to the economy, sluggish growth has been ignited. In fact, the government added additional funds on top of a £75billion stimulus introduced in October 2011.

Fortunately, the UK experienced less bankruptcy filings in the 2011-2012 fiscal years. According to government data, total insolvencies (by individual) between 2010 and 2011 fell along the following lines:

• (2010 Q4) 30,685
• (2011 Q1) 30,145
• (2011 Q2) 30,513
• (2011 Q3) 30,219
• (2011 Q4) 28,973

This resulting in a -5.6 change between insolvency rates between those years. Following this trend, bankruptcy filings are expected to decrease throughout 2013 and the first part of 2014, with a hope they will stagnate to their pre-recession levels by the end of 2014. Nevertheless, the overall trend for insolvency in the UK remains nervously high.

As long as the global economy avoids another major banking or housing crisis (or financial crisis in any major sector, such as energy), fewer business and revenue-generating organizations are likely to go bankrupt. This will allow the government to collect more in taxes to put towards deficits without hurting individual homes and businesses throughout the United Kingdom.

Angie Picardo is a staff writer for NerdWallet, a personal finance website dedicated to helping customers find the best credit cards

Andy Gorton is the author and editor of the Bankruptcy Clinic

Andy Gorton – who has written posts on Bankruptcy Clinic Blog.

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