Personal Insolvency figures fall to lowest levels since 2020

31st July 2023

Latest quarterly figures from the Insolvency Service for England & Wales have indicated that personal insolvency has dropped to 11%. its lowest quarterly level since Quarter 3 (Q3) 2020, heavily fuelled by a reduction in IVA registrations in the quarter.

The figures showed that there were 26,390 individuals entering either bankruptcy (1,826) a debt relief order or DRO (7,106) or an individual voluntary arrangement or IVA (17,458) in Q2 2023.

Bankruptcy numbers rose for the second successive quarter and recorded the highest number since Q4 2021. The number of bankruptcies registered in Q2 2023 increased by 4% from the previous quarter and by 11% from than the same quarter last year.

Bankruptcies consisted of 1,471 debtors’ applications, which was 1% higher than Q1 2023 and 6% higher than Q2 2022, 375 creditors’ petitions, which was 10% higher than Q1 2023 and 30% higher than Q2 2022.

81% of bankruptcies resulted from debtor applications. Bankruptcy numbers in the first half of 2023 increased from the 40-year low in 2022. However, bankruptcies resulting from both debtors’ applications and creditors’ petitions remained at less than half of pre-2020 levels.

There were 1,400 bankruptcies among other individuals in Q1 2023, an increase of 8% compared with the previous quarter and 1% higher than the same quarter of the previous year.

There were 21,232 Breathing Space registrations in Q2 2023. This is 26% higher than in Q2 2022. Of the 21,232 Breathing Space registrations, 20,919 were Standard Breathing Space registrations and 313 were Mental Health Breathing Space registrations.

After seasonal adjustment, there were 26,390 individual insolvencies registered in Q2 2023, 8% lower than the number of individual insolvencies registered in the previous quarter, and 11% lower than during the same quarter in the previous year.

Individual voluntary arrangements (IVAs) were the most common individual insolvency procedure (66% of cases), followed by DROs (27% of cases) and bankruptcies (7% of cases). IVAs make up a larger proportion of individual insolvencies than in the past and bankruptcies a much smaller proportion. Five years ago (Q2 2018), IVAs made up 61% of individual insolvencies, compared to 24% for DROs and 14% for bankruptcies, while ten years ago, 48% of individual insolvencies were IVAs, compared to 27% for DROs and 25% for bankruptcies.

The number of IVAs registered in Q2 decreased by 12% from the previous quarter, and was 22% lower than in Q2 2022. The number of IVAs iwas the lowest since Q3 2020. IVA numbers were down 12% on the previous quarter and dropped 22% when compared to the same quarter in 2022. For the second quarter running, DRO numbers broke the 7,000 barrier, increasing 1% in the period and by 23% when compared to the same quarter in 2022.

The number of DROs increased by 1% in Q2 2023 compared with the previous quarter, and was 23% higher than in the same quarter last year.

In Q1 2023, there were 365 bankruptcies (seasonally adjusted) where the individual was self-employed, this is 20% higher than Q4 2022 and 22% higher than the same period last year. Both bankruptcies amongst the self-employed and other individuals remain historically low.

The industries (in accordance with SIC 2007) that experienced the highest number of trader bankruptcies in the 12 months to 31 March 2023 were:

  • Construction (345, which was 27% of trader bankruptcies);
  • Other service activities (323, 25%);
  • Wholesale and retail trade; repair of vehicles (126, 10%);
  • Transportation and storage (125, 10%)
  • Accommodation and food service (117, 9%).

These five categories made up 80% of trader bankruptcies in the 12 months to 31 March 2023. They were also the most common categories in the 12 months to 31 March 2022, when they made up 80% of trader bankruptcies. Changes in the largest categories ranged from a 13% decrease in Transportation and storage to a 43% increase in Accommodation and food service.

Nicky Fisher, President of R3, the UK’s insolvency and restructuring trade body said “Turning to personal insolvencies, the trend we’ve seen is down to a fall in Individual Voluntary Arrangement (IVA) numbers – which suggests that the ongoing cost of living crisis isn’t translating into more people requiring a personal insolvency process at present.”

“However, the rise in bankruptcies and Debt Relief Orders suggests that more people are unable to make almost any kind of contribution to repaying their debts this quarter, so have turned to these processes in an attempt to resolve their financial issues.”

“Making ends meet is still a key concern for many. People are living in a world where it costs more to keep a roof over their head, put food on the table and keep the lights on, so they’re only spending money on the essentials. Alongside their money worries, job security and the health of the economy are key concerns for many people – while rising interest rates could affect their ability to pay or secure mortgages in the future, and inflation levels will continue to push costs up.”

“An increasing number of people are turning to credit cards to pay bills or pay for the basics, which is concerning as people in this position are just one financial shock – like an unexpected bill or a cut in hours at work – away from becoming insolvent.”

Andy Nalliah, Personal Insolvency Partner at RSM UK said “IVA registrations have dropped significantly when compared against both the previous quarter and the same quarter last year. This could suggest the pandemic trend of higher-than-normal IVA registrations is now slowing. Furthermore, despite a recent slowdown in inflation, energy prices and the cost of groceries, the drop in IVAs could reflect the debtor’s lack of confidence in their own ability to service the financial commitments associated with an IVA.”

“Many people will be starting to feel the bite of hiked interest rates as their fixed term mortgages come to an end and this could be a key driver behind the 22% drop in IVAs compared to the same quarter last year.”

“On the flip side, albeit on a lesser scale, bankruptcy numbers have risen by 4% in the quarter and by 11% when compared to the same quarter last year. This is a further sign of creditors acting upon their previously re-evaluated credit and debt recovery strategies.”

“This aligns with the Insolvency Service’s bankruptcy figures for the quarter, which found 19% have arisen because of creditor petitions; up from 18% in the previous quarter and 16% in the same quarter in 2022. Furthermore, the Insolvency Service report that the actual number of creditor petitions in the quarter is up 10% on the previous quarter and 30% on the same quarter last year.”

“Unsurprisingly DRO numbers remain high, and the quarterly number of 7,106 registrations represents a 1% increase on the previous quarter and a huge 23% 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 the summer of 2021, it is likely that the increase in DRO registrations is those at the higher end of the criteria. By extension therefore, it is likely many of these DRO registrations are for debtors who would otherwise have become bankrupt; perhaps explaining in part the lower levels of bankruptcy numbers.”