One-in-six (15%) people who declared their assets when entering bankruptcy in 2016-17 had assets worth over £50,000, according to latest data provided by the Insolvency Service. In 2016-17, 60 people entering bankruptcy declared assets between £500,000 and £999,000; 26 had assets over £1m.
Bankruptcy is a personal insolvency procedure where the insolvent person’s assets may be sold by a trustee to raise money to repay creditors. Bankrupts face restrictions on borrowing money or acting as a director, typically for a year. After a year, the bankrupt is discharged with their remaining debts written off. People can apply to enter bankruptcy, or, if they owe more than £5,000 to one creditor, their creditors can ask a court to impose a bankruptcy order.
R3 says that misconceptions about bankruptcy and the stigma still attached to it can put people off seeking advice about the process, even if it might help them with their financial situation.
Mark Sands, R3’s personal insolvency committee chair, sayis “Perception and stigma can be effective barriers to seeking help about financial difficulties. You can often encounter a belief that bankruptcy is something that ‘doesn’t happen’ to people who others might typically see as financially comfortable, or even wealthy. This stops people from getting advice when it would be helpful, or it means they don’t take steps to address their financial problems before it’s too late.”
“Anyone, no matter how wealthy they may appear, can have serious financial issues. Someone with a lot of assets could have bigger still debts – it’s all relative. Anyone can be vulnerable to financial shocks, too: common causes of bankruptcy are the failure of a person’s own business, ill health or a relationship breakdown. Unexpected tax demands can also lead to bankruptcy for higher earners, particularly those on the receiving end of Accelerated Payment Notices linked to tax schemes.”
R3 says that the true number of ‘wealthy’ people becoming bankrupt could be even higher, Sands continued “Some people will have exhausted all or nearly all of their assets trying to avoid bankruptcy. Others, meanwhile, will go to every effort to try and hide assets which would otherwise be available to creditors – by moving funds to offshore accounts, hiding high-value items, or signing over property to family members. In these latter cases, the trustee in bankruptcy has the power to investigate and retrieve those assets for creditors.”
Over a third (38%) of individuals entering bankruptcy do not declare their level of assets.
Bankruptcy is one of three types of statutory insolvency procedure, alongside Individual Voluntary Arrangements (where an individual usually retains their assets and agrees to pay back a proportion of debts to creditors over a set period of time) and Debt Relief Orders (a low-debt, low-asset version of bankruptcy where the individual retains their assets and no repayments are made to creditors). Bankruptcy is the least common form of personal insolvency procedure.
Of 99,196 insolvencies in 2017, 15,082 were bankruptcies. Bankruptcy numbers most recently peaked in 2009 when there were 74,671 bankruptcies out of 134,143 insolvencies. An improving economy and the introduction of DROs have since put downward pressure on bankruptcies.
According to the Insolvency Service, in 2015 (the latest year for which such statistics are available), of those bankruptcies due to reasons unrelated to the bankrupt person’s business, the greatest proportion were listed as “living beyond means”, at 2,105 cases. The next most common reasons were “relationship breakdown” (1,715) and “significant reduction of bankrupt’s income” (1,515). For individual bankruptcies which were related to business performance (3,800 altogether), the most commonly-given reason was “management failure” (1,150), followed closely by “loss of market” (1,140).
Sands adds “Whatever your current level of income and wealth, financial planning is a must. If you are facing financial difficulties, talking to a trained and qualified adviser can be a vital step, and finding a form of insolvency that is right for you can be the first step on a road to financial recovery.”