Growth in personal insolvency and IVA figures indicate tough
year ahead
The rapid increase in Q4 2008 personal insolvency figures
highlights the growing number of households in England and Wales
struggling with personal debt as unemployment and home
repossessions soar, in particular the figures for bankruptcy are
the highest on record, says leading business and financial adviser
Grant Thornton.
The Q4 2008 data, issued today by the Insolvency Service and
analysed by Grant Thornton's Personal Insolvency practice, shows a
rapid increase in bankruptcies from Q3 2008 with 19,100
individuals entering into bankruptcy, up 9.4 % in comparison to the
previous quarter (17,451) and up 22.2% on the corresponding quarter
of the previous year (15,636). Individual Voluntary
Arrangements* (IVAs) were up 5.9% on the previous quarter and up
12.2% on the corresponding quarter of the previous year.
Mike Gerrard, a personal insolvency partner says,"These latest
figures illustrate the severity of the UK's debt crisis. The
UK entered 2009 with a bleak economic outlook. The housing
market and the availability of mortgages has near enough dried up
making it difficult to forecast when the market will begin to pick
up again. Worryingly, it is estimated that repossessions will
increase to approximately 205 a day in 2009**.
"The dire condition of the labour market shows no immediate sign
of abating with 2,466*** people currently made redundant across the
UK everyday. Unemployment is liable to rise well over 2
million in the coming months and could hit 3 million by the end of
the year****. Unemployment is normally a lagging indicator so
to see so many job losses this early in the employment cycle is a
big concern.
"These figures provide further proof of the great difficulty
faced by households across the UK of juggling their debt whilst
trying to hold down a job and meet day-to day expenditure during
the economic slowdown," Gerrard concluded.
Individual Voluntary Arrangements and Debt Relief Orders
IVAs have increased by 5.9% (10,344) on the previous quarter
(9,766) but an increase of 12.2% (9,218) on the corresponding
quarter of the previous year.
Mark Allen, Head of IVAs at Grant Thornton, notes that "We have
seen a marked increase in IVA numbers over the last few
months. One key difference is the percentage of homeowners
entering into an IVA which has doubled over the last year.
Homeowners experiencing financial difficulty have always existed
but they are now becoming the majority of people approaching us for
help. The 'middle class IVA' is becoming increasingly common
as remortgaging and consolidation becomes very difficult.
"The Government's proposed introduction of Debt Relief Orders
(DROs) in April is timely for consumers with debts of less than
£15,000 for whom an IVA is generally unsuitable. The DRO will
allow someone to resolve their unmanageable debt without entering
into a full blown bankruptcy," Allen continued.
Please note these figures are available at:
http://www.insolvency.gov.uk/otherinformation/statistics/200902/index.htm
*IVAs - Introduced to the UK in 1986, IVAs are
agreements between debtors and creditors allowing interest on debt
to be frozen and giving the debtor a better chance of returning
some, or all, owed monies to creditors over a maximum period of
five-years. IVAs provide a highly preferable alternative to the
unregulated debt market since they serve to reduce the amount of
time an individual may be tied to paying off their debt. IVAs are
also the only way to freeze debt which unlike that managed by debt
consolidation plans and debt management plans does not increase
with the interest charged.
** The Council of Mortgage lenders
*** Credit Action: February 2009 debt statistics:
http://www.creditaction.org.uk/debt-statistics.html?utm_campaign=stats-mailings&utm_source=january
**** The National Institute of Economic and Social Research,
January 2009: Prospects for the UK Economy