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Personal insolvencies plummet to a 10-year low 30 April 2015

Individual insolvencies in England and Wales have fallen to their lowest levels since 2005, amid low inflation, unemployment and interest rates.

Statistics from the Insolvency Service for the three months to March this year show that personal insolvencies have now decreased for the third successive quarter.

At 20,826 the total was 8.7 per cent down on the previous three months, nearly 20 per cent less year on year, and the lowest since the end of 2005.

Mark Sands, personal insolvency partner at Baker Tilly, said that many factors are contributing to the downwards trends.

He added: “We saw a significant drop in lending in 2008, which has eventually left less people in serious financial difficulty today. We’re also seeing lower levels of personal debt and less people borrowing outside of their means due to more stringent affordability checks by creditors.

“This is resulting in individuals being less likely to need to enter into official insolvency procedures. Also, because creditors are showing more forbearance, people are now approaching them directly to arrange repayment plans.”

The personal insolvency total for the first quarter of 2015 comprised 4,209 bankruptcies, 6,213 debt relief orders (DROs) and 10,405 individual voluntary arrangements (IVAs).

IVAs, which accounted for roughly 50 per cent of all personal insolvencies in the first quarter, have been on a downward trend since 2010. They have fallen 13 per cent from the end of 2014 and 24 per cent year on year.

Bankruptcy orders in the first quarter were 23 per cent lower than a year ago, while DROs were five per cent lower year on year. DROs have also decreased for three consecutive quarters.

Sands said: “The key decline we are seeing this quarter is in IVAs, which are at their lowest since the first quarter of 2009.

“For five years IVAs have remained within a narrow band. This is due to more people preferring to enter into five-year plans and clear their debts than enter into a DRO or bankruptcy, where choices for the debtor are reduced. IVAs offer more flexibility.

“The statistics show IVAs are now catching up with the other insolvency procedures available.”

He added: “Perhaps this is the first real sign that we are working our way through the problems of the credit crunch.”

Phillip Sykes, president of R3, said: “The upcoming changes to DROs could have helped bring down the number of people applying for a debtor petition bankruptcy: they might be trying to hold off before they can enter a DRO under the more generous entry conditions coming in October.”

By Marcel LeGouais

 

 

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