The Insolvency Service has published its latest personal insolvency Quarterly figures in England & Wales which have indicated that there were 29,140 seasonally adjusted individual insolvencies in Q1 2021, a fall of 5.3% compared to Q4 2020’s figure of 30,769, and a rise of 0.7% compared to Q1 2020 (28,936).

Commenting on the figures Colin Haig, President of insolvency and restructuring trade body R3 and Head of Restructuring at Azets said “Personal insolvencies fell in Q1 compared with the final quarter of last year, but they are now slightly above where they were this time last year – that is, the period just before the full impact of the pandemic mostly became known.”

“Bankruptcies in particular are notably lower this quarter than in Q4 of 2020, and Individual Voluntary Arrangements have also decreased, with the fall in Debt Relief Orders less abrupt. The quarter-on-year rise, meanwhile, is driven entirely by a notable increase in IVAs.”

“It still is not entirely clear how the last three months of the pandemic are affecting individuals. It’s been a torrid twelve months for many people and their personal finances, and while IVAs tend to correlate to consumer debts, the gap in bankruptcies and DROs compared with this time last year means there may be more pain ahead if and when these figures start to revert to more ‘normal’ historical levels.”

“Government programmes like the furlough scheme, and payment holidays on loans, mortgages and credit cards, have helped many people affected by the pandemic avoid insolvency.

“However, many private sector support schemes have ended, while the furlough scheme ends in September – and while many have been helped by furlough and debt repayment holidays, not everyone has been able to benefit from them.”

“While some have managed to save during the pandemic, others have had to borrow in order to survive, and, as a result, will be more vulnerable to the financial problems caused by unexpected issues like redundancy or reduced hours at work.”

“The introduction of the breathing space scheme in May will give people who are in debt the opportunity to talk to an adviser about their options for resolving their financial difficulties without any pressure from their creditors. This is welcome and could provide people who are struggling with the time and space to resolve their financial difficulties, but we would urge anyone who is worried about their finances to seek advice – and to do it now.”

Whilst David Heathcote, Insolvency Director at TDX Group, an Equifax company, says the quarterly decline in IVAs is unsurprising but furlough and forbearance leave pent up demand ahead. He said“The expected reduction in Individual Voluntary Arrangements (IVAs) during Q1 2021 has been driven by very low volumes in January in particular. Pre-pandemic, IVAs and trust deeds were experiencing record volumes, but unprecedented COVID-19 related financial support has reversed this pattern, skewing the market and also pushing bankruptcy and debt relief order (DRO) volumes significantly lower.”

“While this seems to paint a positive picture, a more concerning trend of financial difficulty is brewing. A rising proportion of new IVAs and trust deeds since May 2020 have been for consumers where benefits make up over half of their income1, but these arrangements will be resilient to the economic challenges created by COVID-19. However, financially vulnerable people currently availing of payment holidays or the furlough scheme are a different story. Once these are withdrawn, pent up demand will be released as individuals who would’ve otherwise been in unsustainable financial circumstances due to the pandemic resort to insolvency.”

“As lockdown restrictions end and forbearance winds down, it’s vital  government, creditors and the insolvency industry all work together to prepare for the upsurge in demand, mitigating the impact on consumers as best as possible.”

“Despite this, there are regulatory bright spots on the horizon. The latest guidance on marketing debt advice and enhanced regulator monitoring2 may increase trust in the sector if companies not meeting basic standards exit altogether. Meanwhile, the introduction of Breathing Space3 next month will also buy time for customers and debt advisers to create more tailored solutions that best suit their needs – a welcome buffer at a time of great need that should only lead to fairer outcomes for both consumers and businesses.”