The latest official statistics on personal insolvency rates in England and Wales have revealed that the number of people using a formal insolvency procedure increased by 13% in 2016 compared with the previous year. On the face of it, this doesn’t seem like very good news. Quite the opposite, in fact, as 10,526 more people ‘went bust’ in 2016 than in 2015.
But if we scratch below the surface, the figures may paint a slightly less bleak picture.
The headline figure of 90,930 people becoming formally insolvent is a big increase on the previous year’s figure of 80,404. However, the figure is made up of three different insolvency procedures: bankruptcy, Debt Relief Orders (DROs) and Individual Voluntary Arrangements (IVAs). Of these, the number of people going bankrupt was down by around 5%, the number of people entering into a DRO was up by 8%, but the number of people agreeing an IVA with their creditors increased by a whopping 23%.
Why is this interesting?
Of the three different insolvency procedures, bankruptcy is probably the most familiar term. You could be forgiven for never having heard of DROs – they only came into existence in 2009, even though the idea was first mooted in the Cork Report in 1982. Both bankruptcy and DROs are designed for those who have no prospect of ever being able to repay their creditors. But IVAs are different – they are a repayment agreement between an individual and their creditors. It relies on the individual having some spare income, or assets, or both, to offer to creditors. Usually, an IVA will offer a better return to creditors than would be the case in bankruptcy. IVAs are usually a long term agreement, lasting perhaps five or six years, during which repayments are made. So to put forward an IVA, the individual must be confident that their income will be stable and that they will be able to afford to make regular payments.
So the rising number of IVAs suggests that people are generally feeling a bit more confident about their finances and are prepared to put forward an alternative to bankruptcy, rather than just ‘falling on their sword’. Is this just a statistical blip, or a sign of increasing confidence in the wider economy? Time will tell.
If you are struggling with unaffordable levels of debt, why not give us a call today to find out your options? Call Paul Moorhead on 01709 331300. We can help.