Insolvency increases driven by volunteers

The latest increase in personal insolvencies is being driven by people
voluntarily entering bankruptcy or an Individual Voluntary Arrangement, instead
of creditors instigating proceedings, says Grant Thornton.

In the first quarter of 2007 personal insolvencies rose by 23.9% on the
previous year, with 30,075 individuals declaring themselves bankrupt or entering
into an IVA – equivalent to 330 people a day.

Grant Thornton says analysis of the figures issued by the Insolvency Service
show bankruptcies increased by 10% compared with 12 months ago, while the growth
in IVAs has continued at a rate of 47.6% over the same period.

Mike Gerrard, head of personal insolvency at Grant Thornton, says the fact
remains many in the UK are still hooked on spending on credit, and the ensuing
consequences are being exacerbated by continuing increases in the cost of
living, over and above the rise in income levels.

He adds: ‘More and more people are finding their already precarious finances
squeezed further, with many unable to cope and fast-tracking to IVAs or
bankruptcy – once the last resort but now ever more common.’

Gerrard also points out the instances where creditors initiate proceedings
against individuals who are unable to repay their debts have been largely
unchanged for the last eight years, while the proportion of people ‘throwing in
the towel and opting for a bankruptcy themselves has gone through the roof’.

He believes the increase in personal insolvencies is being fuelled by
significant increases in the cost of living, in particular the consecutive
interest rate rises mean in ‘just over three years the cost of an average
25-year standard variable rate repayment mortgage of £100,000, has increased by
£530 a year, while the average household utilities bill has increased by £225
since 2004/05’.

Gerrard adds: ‘Many have simply not coped with its effects. Higher outgoings,
coupled with the effect of interest rates on credit and store cards that may
have rates of between 20 to 30%, represent a serious problem for anyone walking
a financial tightrope.’

However, Mark Allen, head of IVAs at Grant Thornton, says the rise in IVAs is
despite a tougher stance by creditors, which is leading banks to implement more
stringent policies on debt recovery, and even rejecting IVA proposals which are
deemed too lenient.

He adds: ‘As a consequence, the rate of growth of IVAs has slowed.
Additionally, on the back of complaints to the advertising watchdog the more
aggressive examples of IVA advertising are being prevented, and this too may
have stunted the growth of IVA numbers.’