13% rise in individual insolvencies in 2016

1st February 2017

The latest Individual Personal Insolvency statistics from The Insolvency Service have been released indicating a 13% rise in individual insolvencies in 2016. The figures also show that in the last quarter of 2016 Individual insolvencies decreased compared with the previous quarter but were higher than in Q3 2015, driven by individual voluntary arrangements and debtor application bankruptcies. The report shows that the total number of individual insolvencies rose to 90,930 in 2016, up from 80,404 in 2015 – an increase of 13.1 percent.

Commenting on the statistics, Insolvency Service chief executive Sarah Albon said: “Personal insolvencies increased last year for the first time since 2010, however the total was still the second lowest number in the last 11 years. It is very distressing to live with unsustainable personal debt so it is important for people to seek advice.”

Joanna Elson OBE, chief executive of the Money Advice Trust said “While the government is rightly focused on those who are ‘just about managing’, these figures are a reminder that a smaller but growing number of households are not managing at all. “The rise in insolvencies in 2016 points to tougher times ahead for UK households.  At National Debtline we are already seeing our busiest January in years, with calls up 17 percent on last January and a rise of 55 percent in the number people seeking advice online.  “With household debt levels growing significantly and inflation now beginning to rise, we expect demand for debt advice to continue to be significantly higher this year than last.

Mike O’Connor, Chief Executive of StepChange Debt Charity, said: “Insolvencies are on the increase and consumer credit is hitting pre-financial crisis levels. We have also seen record numbers of people coming to us for debt advice in 2016. It is time to look hard at whether the protections for people in financial difficulty are both adequate and accessible for the future.”

Andrew Tate, president of insolvency and restructuring trade body R3 said “Increasing access to statutory personal insolvency procedures has been the story behind 2016’s rising personal insolvency numbers. It’s not necessarily that more people have needed a personal insolvency procedure, but that more people are able to enter a debt solution appropriate to their situation. There are still some significant downward pressures on personal insolvency numbers though, which have helped reduce insolvencies since the last quarter.”

“Despite a recent acceleration in consumer borrowing, personal finances are not too bad at the moment. R3’s last survey of British adults’ personal finances found that 38% of British adults were at least fairly worried about their current level of debt – a proportion that has fallen steadily from the 46% in the same position in March 2015. And while businesses have some pressing Brexit concerns, any financial impact of the EU referendum result, such as higher inflation, will take a little while to filter through to wallets and purses. Compared to last year, however, insolvency numbers are much higher. This is mostly thanks to changes in the way insolvency procedures work.”

“Access to Debt Relief Orders (DROs) was widened at the end of 2015 – as campaigned for by R3 – allowing more people on low incomes and with few assets to deal with small, but problem debts. DRO numbers have been correspondingly higher throughout 2016 as a result.”

“Similarly, bankruptcy applications moved online in April 2016, improving accessibility, slightly reducing the application cost, and removing some of the stigma involved in the bankruptcy process. The fall in bankruptcy numbers is lower than it has been recently.”

“IVAs leapt during 2016, but with real wage growth continuing and inflation still historically low, albeit rising, it is more likely the increase is down to changes in the debt management plan market than wider economic factors. Non-statutory debt management plans have come under increased scrutiny from the FCA and elsewhere, which has seen those in long-term versions of these plans switching to more appropriate statutory debt solutions, typically IVAs. IVAs must be overseen by a licensed insolvency practitioner.”

“It’s important to remember that the government’s personal insolvency statistics do not include the thousands of people who are still in non-statutory debt management plans. These are now regulated by the FCA, but no numbers are published which would help us understand their usage.”

“And while a debt management plan may be suitable for some users, others may be better suited to a formal insolvency procedure that they cannot access. To enter bankruptcy, for example, costs £680 in up-front government fees. Making these fees payable by instalments over the course of a bankruptcy would help those who need to access a formal insolvency procedure more suited to their situation.”

Click here for an infographic providing a guide to Personal Insolvency figures in Q4 of 2016