Latest figures from the Insolvency Service have shown that the number of individuals entering a personal insolvency procedure has increased and shows few signs of slowing as the rolling 12-month insolvency continues to rise, representing the highest Quarter 2 (Q2) figure since 2010. following an 8 year high in Q4 2018. This was driven by falls in individual voluntary arrangements and debt relief orders. Despite this decrease, individual insolvencies remain high – the last 3 quarters have been the highest since Q4 2010. This is the highest level of bankruptcies since Q4 2014 but they remain low in comparison to 2009 to 2014 levels.
The figures reveal that there were 30,936 individuals entering either bankruptcy (4,228), a debt relief order (6,752) or an individual voluntary arrangement or IVA (19,956) in the second quarter of 2019. Further, the statistics show that 1 in 382 adults entered a personal insolvency procedure in the rolling 12 months to the end of Quarter 2, a higher ratio than the 1 in 388 adults in the rolling 12 months to the end of Quarter 1.
Commenting on the figures Duncan Swift, President of insolvency and restructuring trade body R3, said “Although total personal insolvency numbers have dipped slightly, the bigger picture is worth keeping an eye on. The last quarter saw the third-highest number of personal insolvencies since 2011. Individual Voluntary Arrangement (IVA) and Debt Relief Order (DRO) numbers have only fallen slightly, while bankruptcy numbers have climbed again. They’re now at their highest level since 2014, and tend to be a reasonably good indicator of serious, unsustainable indebtedness. The situation is still serious for the UK’s personal finances.”
“Although real wages have been increasing recently, they are still lower than they were before the financial crisis. Employment may be low, but it’s not necessarily secure for everyone. It may be that debt exhaustion is contributing to the declining growth rate of consumer borrowing – which is growing at the slowest rate in five years – rather than a genuine improvement in personal finances.”
“These factors, coupled with economic uncertainty, mean money worries are a fact of life for millions. R3’s latest Personal Debt Snapshot, which is a survey of more than 2,000 British adults’ personal debt concerns carried out in March, found that 40% of British adults were at least fairly worried about their current level of debt, and that the same proportion (40%) said they sometimes or often struggle to make it to payday.”
“R3’s research at the end of last year [October 2018] showed 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. This in itself is worrying, and indicates that many consumers have little financial resilience.”
Alec Pillmoor, Personal Insolvency Partner at RSM said “As we predicted, following the near decade long highs of 2018 and Q1 of 2019, personal insolvency numbers remain high and remain comparable to the first quarter of 2019, resulting in an increase in the rolling 12-month insolvency rate.”
“With near full employment and low interest rates, you would expect personal insolvency rates to fall, but in fact, insolvency levels have risen by 7.2 per cent when compared with the same quarter last year. This suggests that many people continue to be over-optimistic when it comes to estimating their ability to meet repayment demands as they fall due.”
“Of greatest concern is the rise in personal insolvencies among young adults. Back in 2016, insolvencies among adults under 25 only accounted for one per cent of the total. Our research shows that this has risen to around 6.5 per cent today. In this climate of low interest rates and relatively easy access to credit, it is entirely feasible that young people without financial experience or literacy may be more susceptible to the temptations of easy money.”
“Furthermore, debt charities have also raised concerns about the rise in sub-prime credit cards being targeted at those with low credit scores. These can have relatively high APRs when compared to other short-term credit alternatives and serve to further the plight of those with limited understanding of how easy it is to rack up unsustainable debt. A note of caution for consumers in general however. Given the current weakness of the pound and Brexit-related economic uncertainty, many consumers may wish to give closer consideration to their holiday spending this summer to avoid getting into trouble further down the line.”
Louise Brittain, Partner and Head of Contentious Insolvency at Wilkins Kennedy said “I think the figures show that bankruptcies will continue to rise throughout the year because debts on credit cards are mounting and there comes a point when people are saying enough is enough.”
“Council tax bills have risen, fuel has risen, the cost of food is increasing on an almost weekly basis and the effects of last year’s interest rates is starting to be felt. Consumers have been trying to maintain their standard of living by borrowing but when personal debt reaches £20,000 or more, they are applying for bankruptcy.”
“I think people don’t want to carry that debt for five years through an individual voluntary arrangement and instead people are applying for bankruptcy to deal with their debts and re-build their lives. If you add in the uncertainty surrounding Brexit as well then consumers are having to make tough choices in the backdrop of all the questions which remain unanswered regarding our economy and politics.”