new statistics reveal dramatic rise in personal insolvencies

Following our two recent articles on the subject of Individual Voluntary Arrangements (IVAs), the Insolvency Service has just published statistics for the fourth quarter of 2006 that reveal a continued dramatic increase in personal insolvencies. Personal insolvencies are made up of bankruptcy orders and IVAs.

The statistics reveal that there were 29,804 personal insolvencies in the final quarter of 2006. This took the overall total for last year to 107,288 and made it the first year to see over 100,000 personal insolvencies.

Bankruptcies continue to be more prevalent than IVAs as a way of dealing with unmanageable debt although the trend and popularity of IVAs is on the increase.  Of the 107,288, there were 62,955 bankruptcies and 44,331 individuals turned to IVAs.

So where are we now compared with this time last year? Comparing the full set of 2005 figures with those for 2006, there has been a 58.75% increase in the overall number of personal insolvencies representing the highest rate of increase for some 15 years.  In 2005, 47,287 individuals were declared bankrupt.  This figure rose in 2006 to 62,955, a one third increase.

The figures for IVAs show an even greater increase.  These more than doubled, rising from 20,292 in 2005 to 44,331 in 2006, a 118.5% jump. In our previous recent article entitled “Banks Get Tougher on Individual Voluntary Arrangements”, we highlighted lenders’ increasing reluctance to approve IVAs and their criticism of some IVA promoters’ advertising.

In the current financial climate, with recent interest rate increases and the possibility of further hikes, there is no doubting that consumers are under equally increased pressure to meet their financial commitments.

However, when tracing back figures over the last year, are continued increases in personal insolvencies likely?  While the answer would seem to be a resounding ‘yes’, the rate may well show a downward shift.  Some slow down will result from the recently reduced bankruptcy discharge period.  It is also worth noting the underlying social trend in popularity of bankruptcies and IVAs as a way of dealing with debt.  The massive increase in numbers of personal insolvencies is reflective of this snowballing popularity over the last two to three years.  Many consumer debts existed in, for example 2003, with less recourse to personal insolvency.

For further information on this topic, please contact Mike Pavitt of Blake Lapthorn's Insolvency and Business Recovery team.

Note: All of the figures used in this article are seasonally adjusted and refer to personal insolvencies in England and Wales.