Figures released by the Insolvency Service have shown a worrying spike in the number of personal insolvencies reported in the second quarter (April to June) of 2014. The 8% rise represents a total of 27,029 new insolvencies during these three months, over 2,000 more than in the previous quarter and 5% up on the same period of 2013. According to the Insolvency Service, this represents the steepest rise since 2010.
The Money Charity’s August 20014 debt statistics paint a similar picture of woe with 297 people being declared insolvent every day, equating to one person every four minutes and 51 seconds. The charity also reported that 71 properties were repossessed each day (one every 20 minutes and 51 seconds) between March and May 2014.
One wonders why, when the number of insolvencies was actually falling earlier in the year, we’re now seeing this sudden rise. Some experts are putting it all down to the recent economic recovery, with mortgage lenders seeing today’s higher house prices as the ideal opportunity to repossess problem properties.
Others are looking to the growing popularity of Individual Voluntary Arrangements (IVAs) as a way of dealing with unsecured debts. The number of people choosing this form of insolvency has risen by 20%, with debt management firms now accepting clients owing just a few thousand pounds where previously, typical IVA debt levels were around £30-£40,000.
IVAs certainly made up the lion’s share of the 27,000-odd insolvencies declared in quarter two of 2014, with more than 14,500 cases. In contrast, Debt Relief Orders (DROs) accounted for 7,000 and bankruptcies for around 5,400. So what are the differences between these three solutions and why might an individual choose one over another? Specialist bankruptcy advice firm, Bankruptcy Clinic – which also offers IVAs and DROs – explains the key features of each solution.
- May be your only option if your debts are greater than your assets
- Declaring bankruptcy can be a daunting process – but you could be discharged in just 12 months, after which your debts will be written-off
- Involves filing a Bankruptcy Petition and making a court appearance
- The Official Receiver takes control of your estate, and your home and other assets might be sold to help pay off your debts
- Offers immediate legal protection from your creditors and you’ll no longer have any direct dealings with them
- Involves some restrictions around employment, public roles and running a company.
Individual Voluntary Arrangements (IVAs)
- May be suitable if you have multiple unsecured debts with different creditors
- A legally-binding agreement to make regular repayments to your creditors, usually for five years
- Will only go ahead if 75% or more of your creditors (by debt value) vote in favour of it
- At the end of the IVA, any remaining debts within it are written off
- Offers legal protection from your creditors once it’s in place
- Usually lets you keep your home and other essential assets, such as a car for commuting, although you may have to release equity from your property
- Can be varied if your personal circumstances change, but could fail if you don’t keep up your payments – which could end in bankruptcy.
Debt Relief Order (DRO)
- Could be an option if you owe £15,000 or less and have no assets and very little disposable income
- Also subject to other, very strict eligibility criteria
- Places a 12 month moratorium period on your debts, giving you legal protection from your creditors
- Interest and charges on your debts will be frozen during this time and your creditors can’t pursue you
- If things haven’t improved after 12 months, your debts will be written off
- However, you’ll need to comply with a number of restrictions during the DRO, some of which are similar to those imposed under bankruptcy.
Looking for expert debt advice?
It can be hard to know where to turn, or which solution might be right for you, when you’re feeling overwhelmed by debt worries. That’s where Bankruptcy Clinic comes in. We work with leading debt management firm, MoneySolve Ltd, to provide professional debt advice and services, taking the time to understand your personal situation and help you decide how best to manage your debts.
Take your first step to managing your debts today
We’re ready and waiting to help you become debt-free. There’s nothing to lose by asking us to help, to get in touch today. Call our freephone number on 0808 168 7389 (or 01625 462 770 from a mobile), email us at email@example.com or complete our online form to request a call-back.