Personal insolvency on the increase

The latest figures show that personal insolvencies are on the up. Debbie Cockerton explains why.

Now that Brexit has finally happened everyone is settling down to some sort of normality and getting on with the work that was put on the shelf for a while.

In the insolvency world, it has been reported that there has been a nine-year high for personal insolvencies in England and Wales and experts are blaming insecure employment, universal credit delays, weak growth in wages and the uncertainty of Brexit.

The burden of increasing debt levels seems to have taken a toll on low and middle-income households. The government’s Insolvency Service have issued their statistics and on personal insolvencies, and they showed an increase of 6% on 2018, with 122,181 people declaring personal insolvency. This is the highest annual total since 2010. There was a 9.8% increase in Individual Voluntary Arrangements (IVAs), which are now at the highest annual level since IVAs were first introduced in 1987.

Expensive consumer debt

It has been reported that households on a low income had come to rely on expensive consumer debt and are now feeling vulnerable at the unexpected hard times. Lots of people are living beyond their means and using credit cards and loans to buy items that they want, rather than waiting until they can afford them. And people do not have a financial cushion to fall back on due to very little savings.

Banks and other lenders have tightened their credit standards, which was in response to the Bank of England’s concerns over climbing consumer debts.

With regards to County Court Judgements (CCJs), they have also increased; last year they were double the level of eight years ago, increasing by 3% (30,138) to 1.15 million in 2019. This is all bleak news and if anyone is facing personal financial problems, we can give guidance and advice that can be face-to- face, over the phone or by email.

We can also give advice on bankruptcy  – now done online – and we can advise on the advantages and disadvantages of bankruptcy, especially if there is a freehold property involved which may not have an equity in it at present, but could increase within the three-year period that a Trustee has to deal with the interest in the property.

An analysis by the government has shown that last year women were more likely to sign up to an IVA and people living in coastal towns were more likely to become financially insolvent.

Having property or assets

If someone has a property or a large amount of assets it may not be in their best interest to go bankrupt and, sometimes, their career will make it difficult to go bankrupt, especially if they are an accountant, solicitor, Member of Parliament or have another professional career, but the rules of bankruptcy have been relaxed.

If someone cannot go bankrupt then they can look to see if an IVA is right for them, and we can email or post a guidance booklet, called ‘Is an IVA right for me?’, to outline this procedure in more detail. If you or your clients are interested in this booklet please get in touch with me (my email address is debbiecockerton@dcabr.co.uk).

Basically, an IVA is a formal agreement that typically lets the individual avoid bankruptcy and lets them keep their assets. They make monthly repayments to their creditors over a period of, typically, five years. This all sounds very good, but please be aware that the ‘three strik’e rule applies, in that if the person misses three monthly payments the insolvency practitioner acting as the Supervisor in the IVA,will have to report this fact to the creditors. This can lead to the IVA failing and the supervisor will have to petition for the bankruptcy of the person in the IVA.

Bankruptcy can seem to be an easy way out of personal financial debt, especially if bailiffs are knocking at the door, but you should always take advice before declaring bankruptcy.

• Debbie Cockerton is a Partner at DCA Business Recovery. The dedicated ICPA Freephone Hotline (0800 066 2540) is open 365 days a year, from 8am to 8pm. We offer a free and in confidence meetings to discuss your client’s options.

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