Insolvency figures hide true picture of debt in the UK

Friday, 04 May 2012 04:53

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The number of people declared bankrupt has risen for the first time in a year, according to new figures published by the Insolvency Service today.

This is the first quarterly rise for a year amid concerns that rising mortgage rates could see this trend continue.

Bankruptcies rose by 5.5 per cent on the previous three months to total 9,132. The number of debt relief orders also increased by 7.3 per cent to reach 7,897.

But the number of personal insolvencies bucked the trend to post a small decline of 1.2 per cent. This was caused by a drop of 10.4 per cent in individual voluntary arrangements (IVAs), down to 11,694.

Meanwhile personal insolvencies for the first quarter of 2012 totalled 28,723, a drop of 4.7 per cent on the same period last year.

Chris Nutting, Director of personal insolvency at KPMG believes the cost of going bankrupt as opposed to entering an Individual Voluntary Arrangement (IVA) may be influencing the figures.

He said: “Today’s figures illustrate that the number of people entering consensual insolvency agreements – specifically DROs and IVAs – is increasing, in stark contrast to the dramatic drop in the number of people being made bankrupt. It may be that the cost of obtaining a bankruptcy order is deterring both creditors and debtors from using this procedure for personal insolvency.”

The number of companies in England and Wales who had to call in the receivers rose by ten per cent to 1,290 compared to the previous quarter. However, the rise in company liquidations was minimal, up by just 0.2 per cent to 4,303.

However, some debt analysts believe the official figures do not tell the whole story.

Bev Budsworth, managing director of The Debt Advisor, said: “Today’s figures only cover formal insolvency plans such as Individual Voluntary Arrangements (IVAs) and Debt Relief Orders (DROs). However, the figures do not tell the real story that far more people opted for an informal debt management plan – a figure not reported today.

 “There are approximately 732,000 debt management plans in existence, and it’s estimated that 165,000 people sign-up to a plan each year. When you look at the numbers on formal plans, around 120,000, it’s clear to see that the real number of people in debt remains well hidden.”

David Birne, an insolvency partner at HW Fisher & Company believes banks are reluctant to shut down businesses but are also reluctant to lend. He said: "Banks are showing remarkable levels of forbearance, sometimes even with the firms that are dead from the neck up – and with little prospect of clearing all their debts.

"But the banks' continued reluctance, or inability, to lend even to viable companies, is hampering the economy as a whole.”

The Consumer Credit Counselling Service (CCCS) expects personal insolvencies to rise over the next 12 months as job losses, stubborn inflation, higher mortgage payments and welfare benefit changes combine to push more individuals and households over the edge.

Delroy Corinaldi, director of external affairs at the CCCS, said: "It is crucial that anyone who is struggling to repay their debts, or even worried about their debts, should seek free advice and support."

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