The Insolvency Service have just released figures which show a total of 90,930 in England and Wales became insolvent in 2016.
Significantly, this is a 13 per cent increase than 2015.
It is perhaps pertinent that the figures released come only a few weeks after the Governor of the Bank of England Mark Carney warned of a shift in the levels of personal unsecured borrowing. He stated unsecured credit was rising at it’s fastest rate for over a decade. He warned that “vigilance” was needed over rising levels of debt.
While the insolvencies registered in England and Wales are still significantly lower than the peak of insolvencies reached in 2010 it is still concerning that they’re growing by a double digit percentage rate.
The figures must be put in context however given that 2015 saw the lowest levels of personal insolvency in over a decade and insolvencies in England and Wales were lower in 2016 were lower than in any year from 2006 to 2014.
It may be concerning that despite record low interest rates and high employment levels many people felt that they could no longer keep on top of their debts and felt the need to borrow more.
The Bank of England has recently warned of “ballooning levels of household debt”. It has commented that the increase in household debt may in itself be a result of the very low rates of interest. It may be worrying to think that people are using the low interest rate to increase their levels of unsecured debt unnecessarily. This may be the reason for the sharp increase in people taking on more debt in 2016.
There are various ways in which someone with significant debts that are unmanageable can declare themselves insolvent.
An Individual Voluntary Arrangement (IVA) is an official deal between the debtor and his creditors and is overseen by an Insolvency Practitioner who acts as Supervisor of the arrangement. Typically the debtor pays manageable, affordable monthly payments over a period of 5 years in full and final settlements of all his unsecured debts.
Bankruptcy is another way that unmanageable debts can be dealt with. A debtor’s bankruptcy petition allows the insolvent individual to petition for his or her own bankruptcy. The system has had a significant overhaul in the last 12 months and from April 2016 an individual no longer has to go to Court to petition for bankruptcy, it is now simply an online application. The greater ease that a debtor can file for bankruptcy may be a further reason why bankruptcies have seen an increase in 2016.
The different ways an insolvent individual can restructure their debts are as follows:
- Bankruptcy – Once the online petition has been completed and the individual is declared insolvent they no longer have any unsecured debts. The debtor is automatically discharged from bankruptcy after 1 year. Bankruptcy is typically best for insolvent debtors who have little or no assets. The cost of the online application which is considered by an Adjudicator is £680.00. In another change to the process this figure can be paid in instalments and not necessarily in one lump sum at the start of the process as was the old procedure.
- Individual Voluntary Arrangement (IVA) – This is a private deal between the debtor and his or her creditors. It is overseen by an Insolvency Practitioner who acts as Supervisor of the arrangement. This is sometimes better for debtors who have some assets such as equity in their home. It avoids the need for a bankruptcy petition and often means the debtor pays significantly less than the debts that are owed.
- Debt Relief Order (DRO) – This procedure was introduced in April 2009 and allows people with debts of less than £20,000.00 and no assets to write off their debts without the need or expense for a full bankruptcy petition.
For further advice on debt, bankruptcies, and insolvency, get in touch with Farleys Solicitors on 0845 287 0939 or submit your enquiry through our online contact form.