Today, Friday 4 February 2011, The Insolvency Service published the last set of insolvency figures (Q4) for 2010.

At first glance, there appears to be little to say, except that personal insolvencies were down a bit between Q4 2010 and Q4 2009 (13.6% down, in fact) but are pretty much the same over the year (just under 1% up – so not worth thinking about, really).

I took a slightly longer  look at the figures though and a couple of things struck me.

Firstly, that we may have reached a tipping point in the structure of personal insolvency in the UK. Second, that the Official Receiver has really upped it’s game when it comes to squeezing money out of bankrupts.

Tipping point?

Since the year dot, bankruptcies have been the most common personal insolvency procedure. Until 2009, they always outnumbered all other personal insolvency procedures.

Not any more. In 2010 Individual Voluntary Arrangements (IVAs) and Debt Relief Orders (DROs), added together, outnumbered bankruptcies for the first time. IVAs  have risen eightfold over the decade and now represent 38% of personal insolvencies (21% in 2001) – so many more people are choosing a procedure that takes considerable personal effort, but which has less drastic consequences, sometimes, than bankruptcy and which represents a real effort to pay what they owe – something creditors are still not doing enough to recognise.

DROs are big news. The DRO is  a flawed bankruptcy lite – for those who can’t afford to go bankrupt. They’ve rocketed away since their introduction two years ago, and there were 25,179 last year. I suspect rising unemployment may have something to do with this – but not as much as there just being a new, simple procedure in place for people who have low income and low debts.

The real change is one that, I think will be welcomed by government – and built on. Bankruptcy is being eroded at the top by a procedure that represents a fair deal between debtor and creditor and at the bottom by one which makes dealing with debt a simpler and  less costly option for those with low income and few assets. Once they sort out the pension issue I think we will see the number of DRO’s rocket away.

As to building on it, well, it seems to me that the government is concerned to ensure that those debtors who can pay, should pay which brings me to…

Income Payments Agreements

Stealthily, things are changing… Income Payments Orders and Income Payments Agreements have risen very significantly in the past few years. More and more people are finding that the one year bankruptcy is accompanied by a (usually) three year order to pay substantial amounts back to their creditors every month.

It used to be thought that the Official Receiver wouldn’t have the time or inclination to do this. Boy were we wrong. One in four bankruptcies now has an IPA attached to it. That’s interesting too – IPAs are voluntary (ok-ish, doubtless the OR or trustee advises you that you’d be wise to agree). IPOs, which have almost died out, are compulsory and require a court order . So, one-in-four bankrupts are agreeing to repay from future income over three years.

Seems to me that a balance is being sought: Creditors should accept that they need to make it possible for consumers to deal with unsustainable debt. And debtors are finding out that they will be asked to do the best they can to repay as much as they can, in a reasonable time period.

I suspect we’ll see further steps in this direction as the BIS/Treasury consultation on credit and debt regulation goes forward.

A recent report by the Insolvency Service showed that levels of personal insolvency are starting to decline.

The Insolvency Service, the government agency responsible for administering the insolvency system in England and Wales, publishes data on the number of people entering into bankruptcies, individual voluntary arrangements and debt relief orders. They make their data publicly available on the official Insolvency Service website. In August last year ClearDebt published an info-graphic of their insolvency data which you can view here: Insolvency Statistics in Motion.

Their latest report indicates that despite a drop in the number of people entering formal insolvency procedures, the figures still remain relatively high.

ClearDebt’s Andrew Smith comments:

I suspect this is temporary – and could be more to do with times being hard – and having been hard for a while.

My view is that a certain amount of personal debt is the inevitable consequence of consumer credit, and we use credit to finance our lifestyles when we feel confident – and that financial shock then hits a number of us. So, when the economy gets going again and we feel good about spending we’ll sew the seeds of debt. 18 months – 2 years later, the personal insolvency figures will rise again.

The insolvency service data also showed how bankruptcy and other formal insolvency procedures such as IVAs (individual voluntary arrangements) affect different groups of people:

Pensioners

Levels of bankruptcy among men and women aged over-65 are the lowest in the UK, however figures are increasing and pensioners are the fastest growing group of bankrupt individuals in the UK. Bankruptcy within this age group has increased six times in a decade and at a 50% faster rate than for other age groups. It’s worth nothing that the average age of a bankrupt individual in the UK is 41, which is close to the average age of the population (39.5yrs).

Men vs Women

Men made up 60% of bankruptcies in 2009 but the proportion of women bankrupts is growing (from 29% in 2000, to 40% in 2009). Among women aged over-65, the rate of bankruptcy has grown even more sharply, over ten times between 2000 and 2009 and in London it is 43 times higher. Women in debt is something we’ve disussed on the ClearDebt blog before, to view some of our opinion pieces on this topic here: Women in Debt.

In the next few weeks we will be publishing some statistics from our client database of people in debt and comparing this to the UK averages. We have already published a comparison of household income which you can view here: Are people in debt the poorest in society already?

Leading UK debt resolution experts, ClearDebt, welcome the release of the Insolvency Service’s “Debtors Guide”. This plain English document provides common sense, realistic advice on the genuine options available to those struggling with debt in the current climate.

David Mond, CEO of ClearDebt explains;
“This document is exactly what we’ve been calling out for. It provides clarity for debt-ridden consumers about the actions they can take to deal with their debt. This will prove incredibly useful to many people and reassure them that they are aware of all debt solution options and the resources available to help in such a troubling time.”

Expected to become a key tool for the public, this guide is available through the ClearDebt website (download here .pdf format) and to ClearDebt clients, helping them understand the choices available to them.

-Ends –

Notes to Editors

Ends.
For advice on debt solutions, consumers can call ClearDebt on FREEPHONE 0800 0192 095
For further Information contact: Jacqueline Cohen on 07976 739 125, jacqueline.cohen@cleardebt.co.uk / Andrew Smith at Andrew.smith@cleardebt.co.uk