TaxPersonal TaxPersonal insolvencies calm before storm, says profession

Personal insolvencies calm before storm, says profession

Drop in personal insolvencies is the calm before the storm

Personal insolvency figures have taken a surprise fall, with the profession
flagging up concerns over the latest numbers.

The Insolvency Service said that combined Individual Voluntary Arrangements
and bankruptcies for Q2 had fallen by 2.0% on the previous quarter, and 8.3% on
the same period last year.

The figures show that IVAs are down 3.2% on Q1 and 12.4% on the same period
last year. Similarly bankruptcies were down 1.3% on Q1 and 5.7% in comparison to
Q2 2007.

Louise Brittain, national bankruptcy partner at Baker Tilly, admitted
surprise at the latest numbers: ‘I am surprised at the results. I think there
is probably a lag coming between corporate insolvencies and personal.’

She added: ‘I am willing to put money on it that the figures will rise by the
end of the year and would be seriously concerned if it didn’t. At that point we
would need to look very hard at the reasons why they haven’t increased.’

Insolvency professionals suggested IVAs were declining because creditors were
no longer voting in favour of IVAs, instead pushing for debt management plans.

Mark Sands, director of personal insolvency at KPMG said: ‘Our research shows
that only 25% of new IVAs are taking advantage of the new approach
(IVA Protocol) and that
17% of IVAs put forward in the last quarter were rejected. These and other
factors have contributed to IVAs actually falling in the most recent quarter by
13% compared to a year ago.’

Due to the spiralling cost of energy, high interest rates and consumers
finding it difficult to remortgage their homes to free up equity, insolvency
figures were expected to rise before the end of the year.

Mike Gerrard, personal insolvency partner at Grant Thornton said: ‘An
increasing number of individuals will become insolvent as a result of these
tough times, but it will be from a steady build up of financial pressure which
turns controllable debt into unmanageable debt.’

‘Black Wednesday occurred in September of 1992, but personal insolvencies
following that event were felt in Q4 of that year and in a big way in Q1 1993.
Likewise, I expect to see a rise in personal insolvencies later this year, but
particularly in Q1 2009 when the cumulative effects of rising costs and debt
woes are given an extra push over the precipice by Christmas spending,’ he
added.

Further reading:

Insolvency
drop is a false dawn, says PwC

Insolvency
practitioners shying away from IVAs

Insolvency
stats miss full scale of debt, claim practitioners

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