Personal insolvencies continue downward trend

by Rachael Singh

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04 May 2012

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Insolvency Service

PERSONAL INSOLVENCIES continue to decline with latest statistics showing a 4.7% decrease this year compared to the same period in 2011.

Government body the Insolvency Service has released the first quarter of 2012 statistics on personal insolvencies showing a decline to 28,723.

Bankruptcies fell by 27.2% to 9,132 from 12,539 for the first quarter of 2011. However, Debt Relief Orders (similar to bankruptcies but aimed at debtors with few assets and low debts) increased 16.3% to 7,897 from 6,788 for the same period last year. IVA's also increased to 11,694, an 8.1% increase on the 10,818 for Q1 2011.

Louise Brittain, partner in Deloitte's contentious insolvency team, said: "While the total number of individuals entering a formal insolvency process fell by 5% from the same period a year ago, the slight decline in figures does not reflect the crippling financial difficulty that is still being felt by households across England and Wales.

"Bankruptcy levels have shown a 5% increase from Q4 2011. Small business owners are likely to have formed a significant amount of this percentage increase, as suppliers to these businesses are unable to provide or extend credit and increased uncertainty takes its toll. The percentage of bankruptcy orders involving trading debts (self-employed bankrupts) was 22% in Q4 2011, a significant increase from previous years. News that the UK has gone into double-dip recession will add a further blow to economic confidence.

However, the increase in Debt Relief Orders could be due to the increasingly squeezed middle said FRP Advisory partner and vice president of the Insolvency Practitioners Association Charles Turner.

"Debt Relief Orders, an alternative form of bankruptcy for those who owe less than £15,000, are on the increase - a trend linked to the continued squeeze on household budgets from items such as rising fuel costs," he said.

"Individual Voluntary Arrangements (IVAs) continue to provide an alternative and constructive personal insolvency solution with an 8% increase on last year. This generally results in a more positive outcome for creditors who are more likely to recover at least some of their debts."

Deloitte partner and insolvency trade body R3 president Lee Manning said that although official statistics show a decline in personal insolvencies many debtors are in unoffical agreements with their banks.

"R3's latest Personal Debt Snapshot found that 39% of individuals are worried about their current level of debt - this equates to 18 million adults in the UK., " he said.

"However, only 1.4 million people are likely to seek advice in the next six months. Nearly a third (32%) think their financial situation will worsen in the next six months, as people struggle with rising basic living costs."

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