Personal insolvencies hit three year high

Latest statistics quarterly figures from the Insolvency Service for England & Wales have indicated that personal insolvencies numbers have reached their highest total number in over three years, since Q4 2018.

The figures reveal that there were 32,305 (an increase of 16.8%) individuals entering either bankruptcy (1,679) a debt relief order or DRO (6,629) or an individual voluntary arrangement or IVA (23,997) in Q1 2022.

IVA numbers continue to exceed the immediate pre-pandemic quarterly average and in fact rose a further 20% when compared to the previous quarter, whilst DROs continued their recent trajectory, increasing for a fifth successive quarter and 13% on the previous quarter.

Bankruptcy numbers continue to decline with a decrease in numbers for the fifth successive quarter and the lowest quarterly total in 35 years. After seasonal adjustment, the number of bankruptcies registered in Q1 2022 decreased by 8% from the previous quarter and by 36% from the same quarter last year. The number of bankruptcies was the lowest since Q1 1987.

The bankruptcies consisted of 1,427 debtors’ applications, which was 8% lower than Q4 2021 and 39% lower than Q1 2021, there were 251 creditors’ petitions, which was 10% lower than Q4 2021 and 16% lower than Q1 2021. 85% of bankruptcies resulted from debtor applications. This is lower than the proportion seen in previous quarters during the COVID-19 pandemic (approx 90%) but is similar to pre-pandemic values of 75-85%. The numbers of debtors’ applications and creditors’ petitions were both amongst the lowest seen since 1998 when data on petition type started to be captured.

The number of DROs increased by 13% in Q1 2022 compared with the previous quarter and was 59% higher than the same quarter last year.

Commenting on the figuresChristina Fitzgerald, President of insolvency and restructuring trade body R3 said “Personal insolvency numbers are at their highest since Q4 2020 and this quarter’s figures are the highest first quarter’s figures since 2019 as the economic aftereffects of the pandemic and the increase in the cost of living take a toll on people’s financial health.”

“The first quarter of this year was a worrying one for consumers. After two years of economic uncertainty caused by the pandemic, which led to many worrying about whether they’d have a job when the furlough scheme finished, people in England and Wales have had to contend with rising inflation – with fuel and food costs being particular pinch-points.”

“Employment levels have remained strong, but wages haven’t kept pace with inflation, and many people are worried about the economy and their personal finances. And with household debt increasing and credit card borrowing rising, that situation could well become more concerning in the coming weeks and months.”

Andy Nalliah, Personal Insolvency Partner at RSM UK said “IVA registrations for the quarter were recorded at the seasonally adjusted figure of 23,997; the second highest on record and behind only Q2 2020. This would suggest that the first full quarter of lockdown, where many people faced financial uncertainty, the current cost-of-living crisis fuelled by UK inflation hitting a 30-year high is driving debtors to take an active approach as regards their financial positions.”

“Whilst IVA figures were the second-highest on record, the bankruptcy numbers of 1,679 were the second-lowest on record and the lowest for 35 years since Q1 1987. Furthermore, and just as significantly, the 1,679 bankruptcies in the quarter represents a 36% drop on the same quarter last year and an 8% drop on Q4 2021.”

“Of the 1,679 bankruptcies in the quarter, the Insolvency Service report that only 16% have arisen because of creditor petitions. This low percentage follows the post-pandemic trend and could well be because debtors are managing to agree terms with creditors and enter an IVA. However, debtors will be aware that if they renege on the terms of their IVA, bankruptcy may become unavoidable.”

“As interest rates and consumer prices rise, I would expect to see pressure on debtors increase and the number of bankruptcies, and specifically the percentage of those arising from creditor petitions, begin to climb as creditors re-evaluate their approach to both issuing credit and debt recovery.”

“DRO numbers continue to rise and were up 59% on the same quarter last year. The quarterly registrations totalling 6,629 represent the highest quarterly figure since the pandemic commenced and similar in quantum to the pre-pandemic rolling averages. This may however be partly explained by the eligibility thresholds being increased last summer; since which time registrations have risen quarter on quarter.”