Personal insolvencies fall by 3% in the last quarter

Latest figures from the Insolvency Service have indicated that personal insolvency numbers across England & Wales decreased by 4.3% compared to Q1 2021’s figures.

There were 27,622 seasonally adjusted individual insolvencies in Q2 2021, a fall of 4.3% compared to Q1 2021’s figures of 28,895 and a fall of 13.9% compared to Q2 2021 (32,134).

The figures reveal that there were 27,662 individuals entering either bankruptcy (2,385), a debt relief order or DRO (4,367) or an individual voluntary arrangement or IVA (20,910) in the second quarter (Q2) of 2021.

This is the fifth quarter to be wholly affected by the pandemic and associated national measures, and whilst IVA numbers again exceeded the pre-pandemic quarterly average for the fourth quarter in the last five, the number of bankruptcies and DROs remained significantly reduced compared to pre-pandemic rates.

RSM says the figures demonstrate a continued creditor tolerance and a reluctance to act against individuals whilst restrictions remained in place.

Andy Nalliah, Personal Insolvency Partner at RSM said “It is pleasing to see the total number of Personal Insolvencies in the quarter dropping for the second quarter in succession, this time by 4 per cent. However, as DRO numbers remain relatively consistent, the decrease in personal insolvency numbers is largely due to reduced IVA numbers for the second successive quarter and a 9 per cent reduction in bankruptcy numbers quarter on quarter.”

“This is the least number of bankruptcies in one quarter for well over a decade, with the insolvency service reporting a 7 per cent drop on the same quarter last year, which itself was the previous lowest.”

“Although it is not disputed that personal insolvency numbers are reduced due to the pandemic, what is uncertain is the additional impact of Breathing Space, the two-month grace period to protect debtors from interest and enforcement action. Since the introduction of Breathing Space on 4 May 2021, the Insolvency Service has reported a total of 11,747 registrations in the quarter. Whether these registrations are precautionary, or a precursor to a formal insolvency procedure, remains to be seen.”

“Whilst IVA numbers have fluctuated since the start of the pandemic, the rolling 12-month rates remain marginally higher than pre-pandemic rates. Four of the five quarters wholly affected by the pandemic’s restrictive measures have seen IVA volumes exceed the pre-pandemic average. Given the uncertainties over the sustainability of employment as the furlough scheme commences its wind down, IVA numbers continue to suggest that despite the well-publicised issues facing our workforces, individuals have remained proactive in addressing their financial situations throughout the lockdown period as a means to pre-empt creditor pressure and possibly avoid bankruptcy.”

“It is worth recognising data from who Bank of England who reported that net mortgage borrowing hit a record high of £17.9 billion in June 2021. Whilst these figures were likely stimulated by the lower stamp duty rates, debtors ought to be cautious that whilst borrowing is currently cheap, these rates are likely temporary so caution must be given to sustainability and affordability of additional borrowing in the event interest rates rise in the coming years.”

Colin Haig, President of insolvency and restructuring trade body R3 and Head of Restructuring at Azets said “The decrease in personal insolvencies has been driven by a fall in numbers of Individual Voluntary Arrangements and Bankruptcies, although it’s worth noting that Debt Relief Order numbers have increased.”

“This could well be a sign that the Breathing Space Scheme, which was introduced in May of this year, is delaying people from having to enter a personal insolvency process when they previously would have, by giving them time free from creditor action so they can consider their options and seek debt advice.”

“With 11,747 people making use of the Breathing Space up until 30 June, there is clearly a significant demand for this scheme, but whether this prevents more people from entering a personal insolvency process or delays their entry into one is too early to tell.”

“Despite the fall in personal insolvencies, the last three months have been challenging for consumers, as the delay in lifting the final stages of lockdown have affected people’s return to work – or in some cases, return to full-time work.”

“Government support has helped many through this period, with the furlough scheme enabling millions to avoid unemployment, but it hasn’t been able to help everyone and has meant people have had their incomes reduced as a result of being furloughed.”

“And, although the pandemic has meant a number of people have been able to save money, it has meant others, typically those on lower incomes, have had to borrow or use their savings. People in this situation are typically one unexpected issue, such as a reduction in hours at work or a sudden bill, away from insolvency.”