Personal insolvency figures at highest level since 2011

The Insolvency Service has published the latest personal insolvency statistics for England and Wales for Quarter 4 2018 (October to December 2018) which show that that the percentage of IVAs failing within the first year has increased for the fourth consecutive year. The figures also show that 9% of IVAs registered in 2011 and 3% in 2010 were still ongoing, having started around 7 or 8 years earlier. and that eight IVA providers account for over 80% of new IVAs registered in 2018. Personal insolvencies rose 35% from Q3 to Q4 2018, and are 35% higher than in the same quarter in 2017.

Total insolvencies increased for the third consecutive year to 115,229, the highest since 2011. This was primarily driven by increases in individual voluntary arrangements (IVAs) which reached their highest annual total on record. Latest quarter (Q4 2018). Total individual insolvencies increased to their highest level since Q2 2010

Following today’s release of the 2018 Insolvency Service statistics, Richard Haymes, Head of Financial Difficulties at TDX Group, an Equifax company, believes widespread confusion over the consequences of personal insolvency mean more education is required.

Haymes said “Figures released from the Insolvency Service today show that personal insolvencies reached their highest levels since 2011, with Individual Voluntary Arrangements (IVAs) at the highest annual level recorded. We expect insolvencies to remain at this high rate throughout 2019 and 2020, fuelled by high consumer lending and the forceful marketing of companies offering personal insolvency as a debt management solution.

“Research we’ve conducted reveals major misperceptions around the consequences of personal insolvency. Nearly three in ten people don’t realise that entering personal insolvency could affect their access to rental accommodation, over a quarter (26%) of people don’t know it may affect their eligibility for a bank account, and nearly one in five (19%) Brits think it wouldn’t influence their ability to access a mortgage.”

“The survey* also shows people don’t realise the impact on their access to other everyday services, for example three in five (60%) Brits believe there would be no issues in accessing utility services such as electricity, gas, or TV and broadband services.”

“There’s wholesale confusion concerning the consequences of personal insolvency. Entering into an IVA is recorded on your credit report for six years and can make it hard for you to be approved for rental agreements, a mortgage or bank account, as well as other services like utilities. It’s never a decision to be taken lightly.”

“While an IVA serves a valuable purpose when someone’s financial situation has spiralled out of control, we urge anyone experiencing financial pressure to seek help from their creditors or free independent money advice at an early stage so alternative solutions can be explored. The government consultation on increased breathing space and Statutory Debt Repayment Plan (SDRP) closes today, and is designed to provide more support for consumers. The more we publically debate debt and ways to manage it, the better the outcomes will be for individuals, businesses and the economy as a whole.”

Joanna Elson OBE, Chief Executive of the Money Advice Trust, the charity that runs National Debtline, said “It is a worry to see the number of people going insolvent at its highest level for seven years and this reflects the challenging times many people continue to face.”

“With this increase driven in large part by a rise in IVAs (Individual Voluntary Arrangements) our concern is that many people in debt are being led down a route that may not be suitable for their circumstances. The prevalence of online adverts that promote ‘solutions’ to debt involving insolvency procedures may well be a contributing factor to this.”

“Insolvency options should not be undertaken lightly and it is crucial that people receive free, impartial debt advice before deciding the best course of action to take.”

Louise Brittain, Partner and Head of Contentious Insolvency at Wilkins Kennedy said “The increase in Individual Voluntary Arrangements (IVAs) shows that people are more financially aware and seeking help with their debts in a more timely manner.”

“The fact that bankruptcies are lower than IVAs is indicative of the cost of making someone bankrupt which has risen significantly in the last two years.”

“I think it is worrying that more people are in financial distress because the total number of insolvencies has reached figures we have not seen before.”

“The High Street is suffering because people’s disposable income is being reduced by rising costs elsewhere, such as rising commute costs.”

Stuart Frith, President of insolvency and restructuring trade body R3, said “Personal insolvency numbers have been rising steadily every year since 2015, and 2018 was no exception. As banks and other lenders have tightened their credit standards in response to the Bank of England’s concerns around consumer over-indebtedness, many people have run out of road. In previous years, the ‘helicopter money’ provided by PPI refunds, along with generally less stringent lending requirements, helped to paper over the cracks that opened up as a result of a decade of persistently stagnant wage increases, but these avenues look to be closing themselves off. People are having to spend more of their income on housing and transportation, leaving less left over for savings and making budgets more vulnerable to shocks.”

“It is notable that bankruptcies and Debt Relief Orders have risen over a year in which, if you look at the headline figures, England and Wales enjoyed record low levels of unemployment, which is something normally associated with fewer insolvencies. While unemployment is low, the nature of employment is much-changed. Working hours can be unpredictable and not necessarily well paid. That said, low unemployment may help explain rising IVA numbers: employment helps give people a platform for the regular debt repayments involved in the procedure.”

“Inflation was above the Bank of England’s target rate for most of 2018, and although wage growth overtook inflation, there was still a considerable amount of lost ground to make up. For many people it would have been a case of too little, too late. Spending levels were maintained through debt or by using savings, but this is obviously unsustainable in anything other than the short term.”

“Savings levels are painfully thin, exposing people to financial upsets. As an illustration of this, recent research from R3 and ComRes found that one in five British adults (20%) would find it somewhat difficult, very difficult or impossible to immediately pay an unexpected bill for an amount as little as £20, without assistance from an external source.”

“It’s always important to look at the numbers for different types of insolvency procedures, as Individual Voluntary Arrangements, Debt Relief Orders, and bankruptcy numbers each tell us different things. IVAs are often used to deal with consumer debts, but IVA numbers can also be sensitive to changes in the debt advice market and can rise and fall independently of overall personal indebtedness. DROs and bankruptcy are perhaps better indicators of the state of the nation’s personal finances, so increases here are concerning. DROs are used by people with low assets and low debts, and show us the number of people for whom even small value debts are completely unaffordable. Bankruptcy is linked to job loss or insolvencies among small and medium-sized businesses and sole traders.”

“There are measures being taken by the Government to help people in financial distress. The breathing space for people in debt is due to be introduced in the next few years, and will give indebted people a 60-day period free from creditor action to seek qualified advice as to the best way for them to resolve their situation. R3 has campaigned for the breathing space for many years and we are very pleased to see that it is nearing its launch.”

“In the meantime, anyone with debt worries – especially if they have recently become more intense – should speak to a regulated and reputable debt advisor as soon as possible, for help and support as they decide on their next steps.”

Brian Johnson, business recovery and insolvency partner at H W Fisher & Company said “Worryingly the large increase in individual insolvencies, up 16.2% in 2018 compared with a year earlier and to their highest level since 2011, while Individual Voluntary Arrangements (IVA) rose 19.9% to their highest ever level, show just how much pressure households are already under.”

“That pressure has already has a significant impact on consumer spending habits which is one of the reasons why retailers have suffered so greatly in the past year. Given the level of household indebtedness any increase in interest rates in the near term is likely to push these insolvency figures through the roof.”