Debt relief orders trigger slight increase in personal insolvencies

Latest quarterly figures from the Insolvency Service for England & Wales have indicated that personal insolvency numbers increased by 3%.

In Quarter 4 (Q4) 2023 there were 24,910 personal insolvencies, 3% higher in the previous quarter, but 15% lower than during the same quarter in the previous year.

The number of debt relief orders (DROs) was the highest quarterly number since their introduction in 2009 and rose for the fifth quarter running, fuelling the increase in personal insolvency numbers. DRO registrations in the period exceeded 9,000 registrations.

Individual Voluntary Arrangement (IVAs) numbers have declined over the past year but IVAs still made up the majority of personal insolvencies in Q4 2023, making up 55% of cases, while 36% of cases were DROs and 8% were bankruptcies.

There were 20,890 Breathing Space registrations in Q4 2023. This is 15% higher than in Q4 2022. Of the 20,890 Breathing Space registrations, 20,517 were Standard Breathing Space registrations and 373 were Mental Health Breathing Space registrations.

Commenting on the figures, Andy Nalliah, Personal Insolvency Partner at RSM UK said “Despite the small quarter-on-quarter increase in IVA registrations in Q4, the number represents a 36% drop from the same quarter in 2022 and is further proof that the quarterly volumes we have witnessed in the post-Covid era may have stabilised and are likely to remain around the current levels.

“Given the continued political and economic uncertainty, particularly regarding disposable income and interest rates, lower levels of IVA registrations are not surprising as an IVA typically requires a five-year contribution commitment from debtors who are increasingly uncertain of their ability to stay the course.

“Bankruptcies have remained above 2,000 quarterly registrations for two consecutive quarters for the first time since Q2 2022. If ever it were needed, this reinforces the notion that creditors are now foregoing most forbearance measures and pursuing bad debts more aggressively. This is corroborated by the Insolvency Service who report that of the bankruptcies in the quarter, 24% have arisen because of creditor petitions which is much more in line with pre-pandemic and an increase on the 17% of Q4 2022 levels.

“When compared against pre-pandemic numbers, and perhaps more pertinently against DRO numbers prior to the eligibility thresholds being increased in the summer of 2021, it is likely that the increase in DRO registrations are those at the higher end of the criteria. In addition, they are likely to consist of those who would otherwise have become bankrupt; perhaps explaining, at least in part, the lower levels of bankruptcy numbers when compared to pre-pandemic levels. A further reason for the rise in DROs, particularly in the last two quarters of 2023, per the Insolvency Service, is the opening of the new DRO hubs in 2023.”