Personal insolvencies rise by over 60%

Latest figures from the Insolvency Service have indicated a 60% rise in personal insolvency rates across England & Wales.

Personal insolvencies increased by 60.2% to 10,941 in March 2021 compared to February’s figure of 6,828, and were 40% higher than March 2020’s figure of 7,815

There were 1,591 Debt Relief Orders (DROs) and 1,028 bankruptcies in March. The bankruptcies were made up of 937 debtor applications and 91 creditor petitions. The numbers of DROs and bankruptcies in March 2021 were both 31% lower than in March 2020 and 34% lower than in March 2019. Compared to 2020, debtor applications were 29% lower and creditor petitions were 48% lower. Compared to 2019, debtor applications were 27% lower and creditor petitions were 67% lower.

The lower numbers of bankruptcies arising from debtor applications, as well as DROs, correspond with a reduction in applications for these services, which coincided with the provision of enhanced government financial support for individuals and businesses since the emergence of the coronavirus pandemic.

Data for Individual Voluntary Arrangements (IVAs) showed that there were, on average, 6,388 IVAs registered per month in the three-month period ending March 2021,  this is 24% higher than for the three-month period ending March 2020 and 2% higher than the three-months ending March 2019. It should be noted that one IVA provider experienced technical issues between December 2019 and March 2020 which resulted in IVAs not being registered with the Insolvency Service on a timely basis. This meant the number of IVAs registered in the three-months ending March 2020 was artificially low.

Responding to the figures,  Christina Fitzgerald, Vice President of insolvency and restructuring trade body R3,  said “All three kinds of personal insolvency procedures increased in number compared with the previous month, while the year-on-year increase is down entirely to Individual Voluntary Arrangements, with bankruptcies and Debt Relief Orders still notably lower than this time last year.”

“The economic damage caused by the pandemic is starting to be reflected in levels of insolvency, but Government support has postponed rather than prevented the true picture being shown in insolvency levels to date.”

“Twelve months ago, the economy was struck by the pandemic – and it has yet to fully recover. The monthly rise in corporate insolvencies comes after 11 months of relatively low levels of company insolvency procedures, as the Government’s support has provided many businesses with a vital lifeline and removed many of the traditional prompts and triggers for seeking financial advice.

“As lockdown restrictions continue to unwind, there are reasons to be optimistic. Many businesses have adapted and reinvented themselves during the pandemic and maybe in a better position for the coming months as a result.

“We may also see consumer spending increase, but companies need to be aware of the risks of over-trading if they don’t have the cash flow needed to cover the full costs of reopening and restocking. They need to plan for a sustainable reopening of their businesses.”

“Unemployment is unsurprisingly higher than it was a year ago, and while many people have been able to save money during the pandemic, there are also a large number whose personal finances are precarious.”

“The demand for workers in sectors gearing up for a return to pre-pandemic levels of work will offset some of the jobs lost in the companies worst-hit by Covid, but it will take some time for unemployed people’s economic and mental wellbeing to recover.”

“The Government’s recent decision to extend a number of its temporary insolvency measures provides a window for anyone whose finances have been affected by the pandemic to plan for the future and explore how they can improve their situation. We urge them to take it – and to start by seeking advice about their options from a qualified source.”

Whilst Louise Brittain, Restructuring and Insolvency Partner and personal insolvency specialist at Azets said “Formal insolvency processes that people are able to personally apply for have seen a considerable rise with IVAs up by 83% in February and more debtors filing for their own bankruptcies and Debt Relief Orders which also rose by 15%.”

“This means that people are seriously feeling the pressure of the debt burden and are finding they now have no alternative but to enter formal insolvency proceedings to deal with the mounting debt problem. After a year of lock down and furlough, many are now finding they’re unable to hold on any longer and are having to seek the relief of the insolvency regime to relieve the pressure they are under.”

“Mental health issues and other stresses continue to mount as a result of the pandemic and lockdowns, so it’s not surprising that people are deciding they have no alternative. History has shown that when people feel under pressure financially, this does affect the recovery of businesses. The high street may find that despite shops opening up again, they may not get the return to the same level of customer spending they had before.”