Personal insolvencies fall by 6%

Latest quarterly figures from the Insolvency Service for England & Wales have indicated that personal insolvency numbers fell 6%.

There were 24,418 individual insolvencies registered in Q3 2023, 6% lower than the number of individual insolvencies registered in the previous quarter, and 15% lower than during the same quarter in the previous year.

The number of individuals entering personal insolvency in Q3 2023 has dropped for the fourth consecutive quarter and is at the lowest level since Q3 2020. This fall is heavily fuelled by a significant reduction in individual voluntary arrangement (IVA) registrations for the second successive quarter.

Individual voluntary arrangements (IVAs) were the most common individual insolvency procedure (57% of cases), followed by DROs (35% of cases) and bankruptcies (8% of cases). The number of IVAs registered in Q3 2023 decreased by 17% from the previous quarter, and was 35% lower than in Q3 2022. The number of IVAs in Q3 2023 was the lowest since Q3 2020. This is likely in part due to an unusually large number of late registrations of IVAs approved in August and September. Nonetheless, the overall trend is that IVA numbers in 2023 to date have been lower than the record-high numbers in 2022

IVAs in Q3 2023 made up a smaller proportion of individual insolvencies than 2 years ago. In Q3 2021, 72% of individual insolvencies were IVAs. This is driven by both a fall in IVA numbers and an increase in DROs. However, the proportion of insolvencies that were IVAs remained higher than 10 years ago, when 49% of individual insolvencies were IVAs. This reflects the long-term decline in bankruptcy numbers compared to IVAs. IVA numbers were down 17% on the previous quarter and dropped 35% when compared to the same quarter in 2022. DRO numbers continue to rise, increasing 18% in the period and by 49% when compared to the same quarter in 2022. The number of debt relief orders (DROs) was the highest quarterly number since their introduction in 2009.

Bankruptcy numbers rose for the third successive quarter, this time by 8% on the previous quarter, and recorded the highest number since Q2 2021. Bankruptcies also increased, but individual voluntary arrangements (IVAs) were lower. The total number of individual insolvencies was 15% lower than in Q3 2022, according to the latest data from The Insolvency Service.

There were 23,089 Breathing Space registrations in Q3 2023. This is 26% higher than in Q3 2022. Of the 23,089 Breathing Space registrations, 22,722 were Standard Breathing Space registrations and 367 were Mental Health Breathing Space registrations

Christina Fitzgerald President of R3, the UK’s insolvency and restructuring trade body said “While numbers are lower than this time last year, the year before and pre-pandemic, this is likely to be because of the rules for IVA marketing changing and firms catching up with these changes. IVAs have historically been the largest personal insolvency process, and changes to the way they are marketed will affect their volumes as well as the overall total for personal insolvencies.”

“Bankruptcy numbers are higher than this time last year, but well below pre-pandemic levels, while Debt Relief Order (DRO) numbers are at their highest for more than a decade. It’s likely that this is because of the increase in the DRO threshold, and suggests that the cost of living crisis is resulting in more people turning to these processes for help managing their debts.”

“Finances remain a major concern for many people right now. The costs of food, fuel and energy, the health of the economy, and job security are key areas of worry, and mean people are scrutinising every penny – even when it comes to paying for the essential. We expect this to continue as the weather gets colder and Christmas approaches.”

Andy Nalliah, Personal Insolvency Partner at RSM UK, said “For the second successive quarter, IVA registrations have dropped significantly when compared against both the previous quarter and the same quarter last year. This suggests the trend of higher-than-normal IVA registrations, which has generally occurred since the onset of the pandemic, has continued to slow. This remains unsurprising as debtors lack the medium-term confidence in their own ability to service the financial commitments associated with an IVA. Many people will be affected by hiked interest rates as their fixed-term mortgages come to an end and this will be a key driver behind the 35% drop in IVAs compared to the same quarter last year.”

“Despite the decrease in IVA registrations being responsible for the decline in personal insolvency numbers over the last two quarters, bankruptcy and DRO numbers have increased in three and four consecutive periods respectively. The rise in bankruptcy numbers is further evidence of a change in emphasis for the provision of credit and debt recovery. This is corroborated by the Insolvency Service who report that of the bankruptcies in the quarter, 24% have arisen because of creditor petitions; this is up from 22% in the previous quarter and 16% in Q3 2022. Going forward, we expect this percentage to remain higher than recent quarters as creditors continue to chase repayments.’

“Unsurprisingly DRO numbers remain high, and the quarterly number of 8,438 registrations represents a significant 17% increase on the previous quarter and a huge 49% increase on the same quarter last year. When compared against pre-pandemic numbers, and perhaps more pertinently against DRO numbers prior to the eligibility thresholds being increased in summer 2021, it is likely that the increase in DRO registrations represent debtors at the higher end of the criteria and furthermore, 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 throughout 2023 and particularly in this last quarter, per the Insolvency Service, is the opening of the new DRO hubs earlier this year. Given the current trend, we expect elevated levels of DROs to continue in Q4 2023.”