Credit, Collections & Insolvency News
Annual person insolvency figures statistics for England and Wales from the Insolvency Service have indicated that there were 110,022 personal insolvencies in 2021, a fall of 1.4% on 2020’s figure of 111,578, and a fall of 9.9% compared to 2019 (122,155).
The number of bankruptcies in 2021 was 31% lower than in 2020 and 48% lower than in 2019. The long term trend shows that numbers of bankruptcies have been declining, reaching a record low in 2021, the lowest annual number since 1989. Bankruptcies accounted for 35% of individual insolvencies in 2011, 14% in 2019 and 8% in 2021. The record low in 2021 is likely to have been driven in part by enhanced Government fiscal and other measures that were put in place to support businesses and individuals.
While the overall number of individual insolvencies in 2021 was similar to 2020, IVAs increased by 4% compared to 2019 and 2020. IVAs accounted for 74% of all individual insolvencies in 2021 compared to 64% in 2019 and less than 50% before 2014. The numbers of IVAs have been increasing over the past 5 years, reaching a record high in 2021.
The Breathing Space scheme, launched on 4th May 2021, gives people legal protection from their creditors for 60 days, with most interest and penalty charges frozen, and enforcement action halted. It is likely that this scheme, along with the changes to DRO eligibility described below, has had an impact on bankruptcy numbers, however, it is not possible to state the direct effect of these changes.
The number of debt relief orders in 2021 was similar to 2020, but 27% lower than in 2019 (pre-pandemic). DRO numbers were higher in the second half of 2021 than in the first two quarters, following changes to DRO eligibility that came into effect on 29th June 2021, including an increase in the level of debt at which people can apply for a DRO from £20,000 to £30,000.
Commenting on the figures, Colin Haig, President of insolvency and restructuring trade body R3 and Head of Restructuring at Azets said “The annual fall in personal insolvencies is due to an overall decline in the number of bankruptcies and Debt Relief Orders. Individual Voluntary Arrangement numbers increased this year, which suggests that more people are seeking help with their debts and coming to an agreement with their creditors without having to go down the bankruptcy route.:
“It’s also worth noting that although fewer people entered into a Debt Relief Order this year, more than 3,000 more people entered one in the second half of the year than the first. This increase can be attributed to the increase in the Debt Relief Order entry thresholds in June – and might explain the decline in bankruptcy numbers.”
“However, the figures published today can’t disguise the fact that the last 12 months have taken a toll on people’s finances in England and Wales, not to mention the concern members of the public have about their financial futures and the future of the economy.”
“While the Government’s support measures have helped a great many people over the last year, they haven’t been able to help everyone. Levels of personal debt have increased, and household debt is predicted to increase later this year as households attempt to balance their books amid rises in inflation and energy prices and falling wages.”
“Anyone who is worried about their finances should seek advice now rather than letting their problems spiral. We know it can be incredibly hard to talk about money, but it’s better to have the conversation as soon as you can, so you have a broader range of options and time to make a considered decision about your next steps.”
The Insolvency Service figures also showed that the number of individuals entering bankruptcy was the lowest since Q4 1987 with only 1,824 bankruptcies occurring in the quarter.
This is the seventh quarter to be wholly affected by the pandemic and associated national measures, and whilst IVA numbers for the quarter remained comparable with the previous quarter, they again exceeded the immediate pre-pandemic quarterly average for the sixth quarter in the last seven.
The figures also reveal that there were 27,349 individuals entering either bankruptcy (1,824) a debt relief order or DRO (5,863) or an individual voluntary arrangement or IVA (19,662) in the fourth quarter (Q4) of 2021.
| Year | Total individual insolvencies | Bankruptcies | Debt relief orders | Individual voluntary arrangements |
|---|---|---|---|---|
| 2017 | 99,093 | 15,107 | 24,894 | 59,092 |
| 2018 | 115,009 | 16,641 | 27,683 | 70,685 |
| 2019 | 122,155 | 16,742 | 27,467 | 77,946 |
| 2020 | 111,578 | 12,657 | 20,473 | 78,448 |
| 2021 | 110,022 | 8,688 | 20,135 | 81,199 |
| Percentage change, 2021 compared with: | ||||
| 2020 | -1% | -31% | -2% | 4% |
| 2019 | -10% | -48% | -27% | 4% |
Andy Nalliah, Personal Insolvency Partner at RSM UK said “For the second quarter in a row we have seen record breaking lows in the volume of bankruptcies in a quarter, with the Insolvency Service reporting a 7% quarter on quarter decrease. The 1,824 bankruptcies in the quarter represents the least number of bankruptcies in one quarter since Q4 1987. Furthermore, and just as significantly, the 1,824 bankruptcies in the quarter also represent a 40% drop on the same quarter last year.”
“Of the 1,824 bankruptcies in the quarter, the Insolvency Service report that only 14% have arisen because of creditor petitions. Moving forward into 2022, I would expect to see the number of bankruptcies and the percentage of those arising from creditor petitions begin to increase as creditors reassess their options, their priorities and their attitudes to credit and cash recovery.”
“DRO numbers have risen quarter on quarter yet again and were 38% up on the same quarter last year. However, DRO registration numbers of 5,863 remains some 15% down on the same quarter in 2019. Given the increasing of the DRO eligibility thresholds last summer, I would expect DRO registrations to continue to rise and potentially exceed the rolling ten-quarter pre-pandemic average of 6,835 quarterly registrations.”
“IVA registrations for the quarter of 19,662 were slightly below the quarterly average for the year however, for the sixth quarter in the last seven, IVA registrations exceeded the immediate pre-pandemic quarterly average. IVA numbers continue to suggest that despite ongoing concerns for many over the security of long-term employment and rising inflation rates significantly impacting the cost of living, individuals remain proactive in addressing their financial situations and pre-empting creditor pressure; most likely as a means to maintain personal control and avoid bankruptcy.”
“Although personal insolvency numbers as regards bankruptcies and DROs have significantly reduced due to the ongoing affects and limitations of the pandemic, the impact of Breathing Space on personal insolvency numbers remain uncertain. The Breathing Space scheme was launched in May 2021 and provides a two-month grace period to protect debtors from enforcement action and from interest and penalties accruing. The Insolvency Service have reported 13,895 Breathing Space registrations in the quarter. Although only 2% of this number, representing some 275 cases, are recorded as mental health breathing space registrations, whether registrations are precautionary or a precursor to a formal insolvency procedure remains unknown.”
Lewis Shaw, founder of Mansfield-based Shaw Financial Services said “Since the pandemic began, we’ve seen more people consolidating debt into their mortgages along with a sharp rise in missed and late payments, testament to the fact vast numbers of people are simply scraping by month to month. The onset of the pandemic highlighted just how little financial resilience people and businesses had. With inflation soaring and interest rates headed up, the number of personal insolvencies could start to skyrocket in 2022.”
