Personal insolvencies fall by 19%

Latest monthly figures from the Insolvency Service for England & Wales have indicated that personal insolvency figures fell by 19% in March 2024 with a total of 8,708 personal insolvencies registered. The figures was 19% lower than in February 2024 and 9% lower than in March 2023.

The insolvencies consisted of 681 bankruptcies, 2,628 debt relief orders (DROs) and 5,399 individual voluntary arrangements (IVAs).

The number of IVAs registered in March was similar to numbers seen over the past 12 months. DRO numbers were slightly lower than the record high monthly numbers seen in the second half of 2023, but remained high compared to historical levels. The number of bankruptcies was similar to the past nine months and slightly higher than in March 2023. However, bankruptcy numbers remained at about half of pre-2020 levels.

Pearonal insolvency numbers peaked in 2009 and 2010 following the recession in 2008-09, before decreasing over the next five years as the number of bankruptcies declined. An increase in IVA numbers between 2015 and 2019 then resulted in a corresponding increase in overall insolvency numbers. During the coronavirus (COVID-19) pandemic, numbers of bankruptcies and DROs decreased and the increase in IVA numbers slowed, so overall individual insolvency numbers were lower between 2020 and 2022 than in 2019, despite a record high annual number of IVAs in 2022.

The numbers of IVAs declined in 2023 to the lowest level since 2017. This coincided with changes to the wider regulatory landscape, including the FCA introducing a ban on debt packagers receiving remuneration for referrals to IVA firms; and Recognised Professional Bodies adopting a new Statement of Insolvency Practice in relation to take-on procedures. DRO numbers increased between 2021 and 2023, coinciding with an expansion of the eligibility criteria in June 2021, as well as the introduction of new DRO hubs in February 2023. Bankruptcy numbers increased in 2023 from the 40-year low seen in 2022, but remained less than half of pre-2020 levels.

There were 7,710 breathing spaces registered under the Debt Respite Scheme in March 2024. This is 7% lower than in March 2023. Of the 7,710 breathing space registrations, 7,610 were Standard breathing space registrations and 100 were Mental Health breathing space registrations. Between the start of the scheme in May 2021 and 31 March 2024, StepChange Debt Charity registered 62% of breathing spaces.

Commenting on the figures, Tim Cooper, President of R3, the UK’s insolvency and restructuring trade body, and a Partner at Addleshaw Goddard said “Personal insolvencies, the monthly and annual fall in numbers – to the lowest figure we’ve seen in March since 2020 – is driven by a reduction in the number of people entering a Debt Relief Order and an Individual Voluntary Arrangement. Breathing Space numbers have also fallen compared to last month and last year, but a significant number of people are still using this process to seek advice and attempt to find a solution to their financial issues.

“Despite the fall in personal insolvencies seen in the statistics published today, the cost of living crisis and paying for basic expenses continue to be issues for consumers. Food, fuel, heating and housing costs have all remained high, and people are cutting discretionary spending to make sure enough money is left to pay for the essentials. The future of the economy and the security of people’s finances remain key areas of concern, and many people are shying away from making major purchases as they look to save wherever and whatever they can.

“This situation isn’t expected to change soon – and with household debts increasing, unemployment rising and real post-tax household income not expected to return to where it was before the pandemic until the end of next year, times will remain tight for many.”

Andy Nalliah, Personal Insolvency Partner at RSM UK said “Despite the slight dip in debt relief orders, overall, they remain strong. We anticipate this to continue into Q2 and almost certainly beyond June 2024 when consumer access to DROs will improve as entry thresholds for debt levels and assets rise, and the entry fee is abolished.

“Despite the quarter-on-quarter increase in individual voluntary arrangement registrations, total registrations saw a 16% drop from the same quarter in 2023 and further suggests the numbers seen in the post-Covid era have now plateaued. We do not expect to see any significant increases in registrations any time soon, as it is anticipated many consumers will opt for a debt relief order as they become more accessible when the entry thresholds increase.

“Quarterly bankruptcy numbers exceeded 2,000 for the third quarter running, with creditor petitions remaining high and accounting for 19% of the bankruptcies in the quarter. This aligns with the revised attitudes of creditors whose collective approach may now be less sympathetic to debtors, and increasingly proactive in debt recovery and enforcement than we have seen in recent years.”