Personal insolvencies are at their lowest since 2008, with bankruptcies dropping to their lowest level since 2003 according to official figures provided by the Insolvency Service.
There were 27,390 personal insolvencies in England and Wales in the second quarter of this year, which represents a 10.2% drop for the same period in 2010. Bankruptcy levels have also suffered drop of 27.1% to 8,088 when comparing to the same quarter in 2011.
David Rankin, Insolvency Practitioner at Harrington Brooks comments:
It may surprise some people that the number of personal insolvencies is falling at a time of such economic uncertainty, with surveys suggesting that real household income is at its lowest level since 2005 and the unexpected fall in GDP reported last month is making many people question their job security. But, it is precisely because of these factors that the figures are falling and it masks a much deeper problem.
The government introduced Debt Relief Orders (“DRO”) in 2009, which are a quicker and cheaper way of effectively entering Bankruptcy but are only available for people with debts of less that £15,000, assets less than £300 and monthly disposable income of less than £50.
While this has enabled many people who could not previously afford the fees needed to go bankrupt to do so (and the latest figures show as many DROs as Bankruptcy Orders being made in second quarter of the year) they are only available to a narrow band of people. For others who may have slightly higher debts or income, or who have any equity at all in their house, the DRO is not an option and the £700 fees needed to obtain a Bankruptcy Order remain a formidable barrier to the relief they need.
Those people may also find that they do not have quite enough disposable income to propose a viable Individual Voluntary Arrangement (“IVA”) with their creditors, or feel that their employment is not sufficiently secure enough to enter into the typical five year commitment of an IVA, and so they find themselves with no alternative but to enter a Debt Management Plan (“DMP”) instead.
The numbers of DMPs are not recorded anywhere and I suspect that the truth may be that the number of new DMPs each month is rising, so the overall picture is much worse than may be suggested by the Insolvency Service’s figures which report formal insolvencies only. It is ironic that when household budgets are really squeezed the relief so many people need is actually priced out of their reach.