Personal insolvency set to stay low
The number of people being tipped into insolvency in the third quarter of this year is expected to remain close to its lowest levels in five years in official figures released today.
Personal insolvencies, which are made up of bankruptcies, debt relief orders (DROs) and individual voluntary arrangements (IVAs), fell to a five-year low of 25,016 in England and Wales in the first quarter of 2013 before edging up slightly to 25,717 in the second quarter.
Charles Turner, president of the Insolvency Practitioners Association (IPA) predicted the figures released by the Insolvency Service today for the third quarter will show a small drop on the previous three months, with around 25,600 people going under financially.
If this is the case, it would put the number of people entering a formal type of insolvency in 2013 so far at around 76,000, meaning the overall total for this year is on course to come in lower than the 109,000 people who went insolvent in 2012. Last year's total was the lowest annual figure recorded since 2008.
Figures for the second quarter of 2013 showed that bankruptcies, which are often seen as a "last resort", were at their lowest levels for more than a decade.
Meanwhile DROs, which are often dubbed "bankruptcy light" as they are aimed at people with relatively low amounts of debt of less than £15,000 but no realistic prospect of paying it off, fell back to their lowest levels in more than two years.
The slight upturn in the second quarter was caused by a rise in people taking out IVAs, which are agreements with creditors to pay all or part of the debts. Regular payments are usually made over a five-year period to an insolvency practitioner, who divides them up between creditors.
Mr Turner, a partner at FRP Advisory, expects the number of bankruptcies and DROs to continue on a downward path, while the number of IVAs will edge up from 12,116 seen in the second quarter to more than 12,500 in the third.
But he cautioned that the official figures do not reflect the full extent to which people are struggling with their debt, particularly in light of the recent round of hikes announced to energy bills.
Mr Turner said: "IVA numbers are holding up and remain a preferred option for many over-indebted consumers but the overall numbers continue to disguise the harsh reality for many on stagnating incomes and facing sharp increases in fuel and other domestic costs...
"Large numbers of consumers will continue to live in a twilight world of over-indebtedness for the foreseeable future."
Mark Sands, personal insolvency partner at Baker Tilley, said that "on the face of it" the rising proportion of people opting for an IVA and committing to paying money back over a five-year period rather than declaring themselves bankrupt and trying to walk away from the problem is a further sign of improving confidence in the economy.
He continued: "T he trend towards a greater reliance on IVAs could reflect the drip drip impact of pay not keeping pace with inflation.
"Faced with an inflation-busting energy bill or a season ticket that's up for renewal, those who were once able to service their debts and credit card bills are finding the squeeze on their disposable income so great they are forced into doing a deal with their creditors."
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