Number of people going insolvent in England and Wales increases by almost a fifth

Posted by Ben Tumilty in Dealing with Debt on 3 November 2016 - Ben is a Credit Analyst at checkmyfile

Personal insolvencies saw a 20% increase in the third quarter of this year compared to the same three months in 2015, based on data released from the Insolvency Service.

The statistics are quite worrying, as between July and September 24,251 people declared themselves insolvent – a 6% rise on the previous three months of 2016. Roughly 80,000 personal insolvencies were recorded in 2015, and some experts believe that the number this year could top this on the back of Brexit.

Within personal insolvencies, the changes make for interesting viewing. Traditional bankruptcies are becoming less commonplace – 3,844 were recorded in the 3 months to September, down 1.5% on the same period last year, but up on the second quarter of this year.

The figures for IVAs on the other hand have skyrocketed. IVAs have become popular, as they usually offer some residential security – assets included in an IVA very rarely include houses – and this is reflected in the number of people struggling with debt and choosing this option.

13,971 IVAs were accepted in the third quarter – a staggering increase of almost 29% from 2015. An increase in personal insolvencies is an issue in its own right, but to see such a marked rise in IVAs comes as a major concern for those in the field.

Mark Sands from RSM Notes that this is the fifth consecutive quarterly increase in personal insolvencies, but also suggests that these increases are more likely to be as a result of “developments in the insolvency market rather than the reality facing borrowers.”

That being said, Sands says that “with the current strength of the pound threatening more significant price rises next year, those consumers who find that their wages don’t keep up could begin to find themselves in difficulty.”

From insolvency trade body R3, Andrew Tate believes the cause of the rise in numbers rests with the increased cost of living, as well as reforms to personal insolvency procedures, “Individual voluntary arrangement numbers, which make up the bulk of personal insolvencies, are sensitive to the cost of living. IVAs fell rapidly from 2014 onwards as wage growth finally overtook inflation after the financial crisis.“

Continuing, Tate says that, “Having plummeted towards zero per cent in 2015, inflation has been rising again this year and IVA numbers have followed. Consumer debts are on the rise and savings rates are incredibly low so it's very easy for even a small financial shock to make someone insolvent.”

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