According to the latest figures from the Insolvency Service, Personal Insolvencies in England and Wales last year were at their lowest level since 2008, and were down 9% compared to 2011. Quarter -on-quarter figures suggest that numbers of Individual Voluntary Arrangements (IVAs) and Debt Relief Orders (DROs) are also falling.
Can this be read as an indication that average Britons are becoming more financially stable? Does it evidence our emergence from recession, or at least suggest that many of us have successfully managed to juggle our straitened finances? The answer may well be ‘no’, as it is suggested that the Insolvency Service’s figures fail to take account of the extent to which people are struggling financially against rising household costs.
There are a couple of other factors that are worth consideration’¦
From a Creditor’s perspective, petitioning for the bankruptcy of a debtor is unlikely to yield high returns – most bankruptcies are discharged after 12 months, and returns will usually be measured in pennies in the pound in the cases of all but the most asset-rich but cash-poor. The same is true of IVAs and DROs, which are formal arrangements falling short of full-on bankruptcy, usually supervised by a licensed Insolvency Practitioner, and which involve a proposal being put to creditors inviting them to accept a pro-rata contribution to the debt they are owed over a fixed period (often 3-5 years in the case of an IVA).
The Insolvency Service’s statistics will also fail to take account of those people who fall through the cracks – who are in debt, but trying to deal with their debt by informal arrangements with their creditors, or debt management plans such as those offered by the Consumer Credit Counselling Service, or Payplan. These avoid the stigma which still surrounds formal insolvency procedures, and will usually involve creditors being asked to accept a reduced periodic payment in respect of the debts they are owed. Others still will no doubt simply be resorting to further credit to plug holes in their household budgets.
The Insolvency Service’s figures may not be cause for celebration, therefore.
By Mark Skinner, Bankruptcy Solicitor
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