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Individual insolvencies unexpectedly fall

The number of individuals becoming insolvent fell 8.3% to 24,553 in the second quarter, surprising analysts who expected to see an increase as evidence that higher living costs were impacting upon people's finances.

Individual insolvencies were made up of 15,297 bankruptcies (down 6% on the same quarter a year ago) and 9,256 Individual Voluntary Arrangements (IVAs) (down 12%). Interestingly there was a pronounced shift towards debtors' petitioning for their own bankruptcy as, in the second quarter of 2008, 84% of bankruptcy orders were made on a debtor’s petition.

Nevertheless, we must look at these statistics with an element of caution as they may have been skewed by a rise in the number of people entering into informal debt management plans to try and head off insolvency.

Indeed, the decline in individual insolvencies is generally perceived to be a result of a reduction in the number of people entering into IVAs as lenders are more reluctant to accept IVAs and are imposing stricter terms. This has been fuelled by reports over the past year of banks raising their hurdle rates - the amount of money they are willing to accept from borrowers to settle their debts.

Steve Smith, Head of Insolvency at Mercer & Hole, comments: “Although the 'trickle down' effect of the credit crunch hasn’t truly hit personal insolvency figures, over the next 12 months the situation seems certain to deteriorate as consumers in the UK rein in their lifestyle borrowings. The downturn in the housing market, soaring commodity prices and the credit crunch will continue to take their toll.”

 

 

 

Date: 1st August, 2008
Author: Caroline Stark

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