The Insolvency Service has published its latest which indicate that in Quarter 2 (Q2) 2020 personal insolvency numbers increased by 12% (32,153) up from 28,747 in Q1 and by 7% from Q2 2019 (30,076).

This is the first quarter that has been properly affected by the lock-down and despite the rise in overall numbers, the reduction in the number of bankruptcies is much as expected.

IVAs were the most common type of individual insolvency (78% of cases), followed by DROs (15%) and bankruptcies (8%).

Commenting on the figures Colin Haig, President of R3, the insolvency and restructuring trade body said “Today’s rise in individual insolvencies has been driven by a significant quarterly increase in Individual Voluntary Arrangement (IVA) numbers, which may be more of a reflection that more people are seeking help with their financial situation rather than an increase in overall consumer debt levels.”

“The fall in numbers of bankruptcies and Debt Relief Orders might indicate there is a potentially uneven spread of financial distress. This is because those who earn less tend to opt for IVAs and DROs, while bankruptcies are typically used by those with more assets or higher incomes. This suggests – as we’ve seen elsewhere – that the impact at this stage, at least, might be uneven, and that the recovery may well be K-shaped.”

“It’s important to note that while today’s figures indicate how the pandemic is affecting some indebted people, the expected increase in individual insolvencies is yet to materialise fully. The Government’s support measures have provided a number of people with a crucial safety net in the first three full months of lockdown. Without them, many would have struggled even more, and as they begin to wind down, a number of people are likely to find themselves facing financial difficulty.”

“Despite the Government’s efforts, the COVID-19 pandemic and its impact on employment levels and the economy have made many people anxious about their finances. Consumer confidence has been low since April, and people are pessimistic about their financial future, as well as the current and future health of the economy.”

“Research we carried out in May showed that our members expect personal insolvency numbers to increase between October and December of this year and in the first three months of 2021. They tell us that while requests for personal insolvency support didn’t change in the early stages of the pandemic, people are becoming more concerned about their financial future.”

“The best thing anyone who is worried about their finances can do is to get advice from a qualified professional as soon as possible. The earlier they do, the sooner they can begin to resolve their financial issues, and the better chance they have of improving their situation.”

Alec Pillmoor, Personal Insolvency Partner at RSM said “The number of Personal Insolvencies fell during 2019 and this continued into Q1 2020. Despite testing times for debtors and creditors throughout the quarter, this trend ceased in Q2 2020.”

“The substantial reduction in bankruptcies and DROs in Q2 2020, whilst welcome, is in line with our expectations in the current circumstances. A perceived increase in creditor understanding coupled with a reluctance to act against individuals has led to a substantial decrease in certain procedures throughout the lock down period. However, now that workforces are returning, the courts are reopening and creditors will be looking to maximise their cashflows, I expect enforcement action to increase so that the reductions seen in Q2 is likely to be the lull before the storm.”

“IVAs in the quarter are 44 per cent higher than in than Q1 2020, much the reverse of the outcome we anticipated. The Insolvency Services has noted that the increase in IVAs must be treated with caution due to various technical issues. However, whilst we may have considered creditors may be wary of agreeing to contributions-based arrangements given the uncertainties over the sustainability of employment, creditors are seemingly giving debtors the benefit of the doubt and allowing them greater autonomy to alleviate insolvency issues. This suggests that despite the well-publicised issues facing us all, individuals have been very proactive in tackling their financial situations throughout the lock down period.”

“As businesses get back to pre-pandemic working patterns, and their cashflows become stretched, I anticipate that there will be a squeeze on individuals’ finances and that the rate of Personal Insolvencies will increase, possibly not substantially in Q3 2020, but certainly towards the end of the year .”