The Insolvency Service has published its latest insolvency statistics which indicate that the underlying number of personal insolvencies decreased in England & Wales.
Total individual insolvencies fell in Q1 2019 from an 8 year high in Q4 2018. This fall was largely driven by a decrease in the number of individual voluntary arrangements (IVAs) though both debt relief orders and bankruptcies fell slightly from Q4 2018.
Total individual insolvencies in Q1 2019 were the second-highest since Q3 2010.
There were 31,527 individual insolvencies in Q1 2019, 8.1% lower than in Q4 2018. Although total individual insolvencies fell this quarter, they remain elevated compared with recent years and increased by 15.9% compared to the same quarter in 2018.
The quarter-on-quarter decrease in total individual insolvencies in Q1 2019 was largely driven by a decrease in IVAs. In Q1 2019, there were 20,325 IVAs, a decrease of 11.4% compared to a record high in Q4 2018. Q4 2018 had seen the highest quarterly level of IVAs since their introduction in 1987.
Compared with the same quarter last year, IVAs increased by 23.7%. Both DROs and bankruptcies decreased slightly this quarter by 1.6% and 0.6% respectively. This was the first quarter-on-quarter fall in DROs for almost 2 years. Compared to the same quarter last year, bankruptcies were broadly flat while DROs increased by 6.5%. IVAs accounted for 64.5% of total individual insolvencies followed by DROs (22.3%) and bankruptcies (13.2%).
Since Q3 2011, IVAs have been the most common individual insolvency while bankruptcies fell after the introduction of DROs in 2009.
Commenting on the Insolvency Service statistics, Richard Haymes, financial difficulties expert at Equifax, has called for broader regulatory action on personal insolvency and debt “Despite a slight quarterly drop from record levels in Q4 2018, personal insolvencies are up 16% year-on-year and Individual Voluntary Arrangements (IVAs) have risen 24% in the same period, highlighting the need for intensified regulatory oversight.”
“The drivers for the general trend of rising insolvencies, such as soaring credit card debt (now £2,649 per household*), economic stagnation and the problematic rollout of Universal Credit remain, but other industry developments are directly impacting volumes, such as the re-emergence of a number of historic major players offering IVAs. These companies, which also offer debt management services, have transformed their businesses following the first FCA thematic review in 2015. Having met the regulatory requirements, they are once again in growth mode. Against this rising tide, debt charities lack the financial resources they need to market their non-commercial, free of charge services. These include alternatives to IVAs such as Debt Relief Orders, which can often be more appropriate for consumers.”
“Regulatory intervention has worked in the debt management space. The second FCA thematic review of the debt management market released in March showed significant improvements in managing customer outcomes. With volumes of personal insolvencies and IVAs historically high and more firms beginning to crowd the sector, regulators need to remain focused on adapting to a fast-changing market.”
“While the government has positive plans in place, such as formalising Breathing Space and the consultation on Statutory Debt Repayment Plans, these won’t take effect until at least the end of this year. Facing potential headwinds from Brexit and wider economic conditions, the financial situation for many individuals and families is likely to worsen.”
“Debt is a wider issue that goes beyond regulatory bodies, charities and government, and every facet of society must also burden some responsibility. We urge individuals struggling with debt repayments to talk to their creditors as soon as possible, and compel creditors of all types to use data-driven methods to identify customers at risk of financial difficulties and support them in accessing high-quality advice.”
Louise Brittain, Partner and Head of Contentious Insolvency at Wilkins Kennedy said “There is still financial fragility in personal insolvencies. This three-month period traditionally sees the highest number of personal insolvencies since people are struggling to pay off their debts from Christmas.”
“This shows people are addressing their financial issues and paying off their debts through Individual Voluntary Arrangement which primarily use income payments to meet at least some of the total debt mountains.”
“The problem will come if there is an increase in interest rates which will have a devastating effect because people will be losing some of their income to pay more on their mortgages and this will of course impact on repaying their unsecured debt.”
“I would then expect individual insolvencies to become an issue and personal bankruptcies will increase.”
Stuart Frith, President of insolvency and restructuring trade body R3, said “A quarterly fall in insolvency numbers was almost inevitable given the one-off size of the increase at the end of last year, although we still have levels of personal insolvency last seen almost a decade ago.”
“It’s really important to remember, however, personal insolvency numbers don’t necessarily tell us how many people are insolvent, but rather how many people are able to access a personal insolvency procedure to resolve their debts.”
“The most common form of personal insolvency procedure, an Individual Voluntary Arrangement (IVAs), is an effective means of dealing with unsustainable consumer debts. Changes in IVA numbers can be driven by changing consumer debt levels, but they can also be driven by the type and amount of IVAs which providers are able to support.”
“Better indicators of serious indebtedness are the numbers of bankruptcies and Debt Relief Orders. These processes help people who are unable to make almost any kind of contribution to repaying their debts, and have been slowly creeping up over the last year.”
“Although raw numbers of bankruptcies and DROs have dipped slightly, the rate of these procedures – the number of procedures per adult – actually increased slightly or held steady. These increases are a reflection of the fact that the UK’s personal finances are not in a healthy place. Although unemployment levels remain low, and real wages are starting to rise once more, there has been a long, long squeeze on personal finances which won’t be rectified overnight.”
“Real wages are lower now than they were before the financial crisis, while, for many, gaps in income have to be plugged by debt rather than savings. Similarly, consumer spending is increasingly focused on covering basics, not on luxuries or retail spend.”
“The latest figures underline the scale of the financial problems facing many people. Anyone worried by their debts should seek non-judgemental, expert and professional help to explore their options as soon as possible.”
