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Personal insolvencies fall but still cause for concern

4 November 2011

Personal insolvencies in England and Wales decreased to 30,219 in the third quarter of this year, down from 30,513 in the three months up to June, Insolvency Service figures showed today (PA). Charles Turner, Partner at FRP Advisory LLP and Deputy Vice-President of the Insolvency Practitioners Association, comments:

"On the face of it, the big drop of 31.2% in the number of bankruptcies is good news. They are at much lower levels than the same time last year, 9,567 in Q3 of 2011 compared to just under 14,000 in Q3 2010, even taking into account the increasing number of Debt Relief Orders (DRO), up by 536 for the same period. However we do need to consider whether this is as a result of improved personal finances, or a sign that both creditors and debtors are losing faith in bankruptcy as a solution to their problems. There is no doubt that the bankruptcy process is more costly and more cumbersome, certainly than other insolvency options. 

"Individual Voluntary Arrangements (IVA) are increasing quarter on quarter, and there has been a significant jump in the last quarter to 13,048 compared with 12,143 the previous quarter, a 7.45% increase and also a 0.7% increase on the same period last year. This increase is not surprising. Recent Bank of England figures reveal that unsecured consumer credit lending increased in September 2011 by £0.6bn and for the quarter ended September is now growing at a rate of 2.5%. So consumers are borrowing more and building up further debt – at the end of September, total credit borrowing stood at £209 bn.  

"Given the background of a continuing squeeze on consumers from a number of directions, fuel costs, earnings, unemployment and benefit cuts it's hardly surprising that more consumers are turning to credit – or at least those that can. Many are fast running out of options and are being forced into often painful cuts in their personal expenditure. There can be little doubt that the true position is much starker than these latest statistics indicate. 

"Of particular concern is the increasing reliance on unsecured debt by younger families with latest statistics revealing that 15 per cent of young families are in arrears*. This is further backed up by research, conducted by the Financial Inclusion Centre thinktank, which found that more than one million households containing 18- to 39-year-olds are struggling to cope and a further 893,000 are "at risk" of falling into difficulty. 

"Often these families won't show up in the official statistics, but are struggling on outside the statutory personal insolvency framework, even if they are unable to cope with their debts. For them, formal personal insolvency solutions may well not be on their agendas; the reality is that many limp from one financial crisis to the next or simply bury their heads in the sand and invite creditors to do their worst." 

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*Consumer Credit Counselling Service report 2 November 2011