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?

Is debt always with us? Well, for some, it would appear so. One unfortunate debt worrier who came to us had debt that would take more than 694 years to repay!

I’ve been taking a look at the people on our database who say their income is bigger than their outgoings (ie those that aren’t bust) and trying to work out how much effort it would take to become debt free. Aside from our number one debtor (with seven centuries worth of credit card and unsecured loan repayments – our figures exclude mortgages) we had  14 enquiries from people whose debts would take more than a century to repay and 45 enquiries from people who would take more than 50 years – and our estimates are based on all interest and charges being frozen: So, these periods, in the real world, would be in debt for an awful lot longer. We shouldn’t get things out of proportion though – these were a handful of cases in the context of the sample of  50,113 employed and self-employed people I was working with.

Mind you, once you get into the nitty gritty of the sample, I do think there are some things worth worrying about. OK, technically, these people are able to make some contribution to their debt (unlike the last blog group I looked at last time, whose outgoings exceeded their income and who, therefore, were getting deeper in debt every month). But 6% of them would take (assuming interest and charges frozen) more than ten years to repay what they owe and 44% would take more than two years (arbitrary I know, but I reckon that having unsecured debt the principal alone of which will take you more than two years to repay using all your disposable income is probably a decent measure of “problem debt”). Here’s a chart with the figures in more detail.

Looking across the sample and not just at the hard cases it is clear that the less you earn, the more difficult it is to repay your debt. Nothing new there I guess. However, I think it is worth noting, bearing in mind this sample is of people who were worried enough to approach ClearDebt for debt advice, the huge difference between the lowest and highest earners.

Those who take home (after tax and NI) less than £10,000 a year would take, on average, 13 months to repay all their debt (assuming interest and charges were frozen and they used all their disposable income to do it). Those taking home more than £50,000 a year would, on average (and making the same assumptions) take just two months to become debt free. And they were still worried enough to seek our advice!

“Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”

So says Wilkins Micawber in Dicken’s novel David Copperfield. This quote has become so commonly used as a definition of the consequences of debt that it has entered the English language as “The Micawber Principle”.

Well, in the second of an occasional series of short blogs looking at the characteristics of people who struggle with debt, I decided to try to find a simple measure of just how deep in the mire the people who seek ClearDebt’s advice are.

I chose to divide people up by the same take-home pay groups i used in my last blog and to find the proportion that spent more on their ordinary living expenses (not including credit repayments) than they got in their pay-packet every month.

I guess I wasn’t surprised by the general conclusion – that the less you earn the more difficult you find it to make ends meet. But, I was surprised by just how many people spend more than they earn: Amongst people earning less than £10,000, 13% were getting deeper into debt every month. And, amongst those earning £10K-£20K, it was 9%. Even amongst strugglers taking home more than £50K a year there are still some who admit they can’t stretch their pay to meet their outgoings.

Overall,  one in fourteen of the people who asked for our advice were getting into deeper debt every month.

Last time – is debt more common amongst people on the lowest incomes?

Next time – how long could it take people to pay off all their debts?

Using an interactive motion chart, ClearDebt have republished government public data spanning the period 2000-2009 from the Insolvency Service of England & Wales. This multi-dimensional data displays the evolution of personal insolvencies, by IVAs and bankruptcies, by English districts.
UK Insolvency Service Statistics chart courtesy of ClearDebt

This motion chart allows you to select the region that interests you by ticking one or more areas.

Interact with the data by selecting different values for the axis. Modify the size and the colour of the circles to display different information to suit.

For example, to display the volume of IVAs, select from the horizontal axis, the drop down that offers IVAs, then click the play button to visualise the evolution of IVAs in England & Wales for the nine year period.

If you select a specific district from the list, and press play button, a trail will be created for that district showing it’s evolution over time.

The original source data for the chart above is available from the Insolvency Service Statistics.

Embed the chart:

<script src="https://spreadsheets.google.com/gpub?url=http%3A%2F%2Foj0ijfii34kccq3ioto7mdspc7r2s7o9-ss-opensocial.googleusercontent.com%2Fgadgets%2Fifr%3Fup__table_query_url%3Dhttps%253A%252F%252Fspreadsheets.google.com%252Ftq%253Frange%253DA4%25253AJ3084%2526gid%253D0%2526headers%253D-1%2526key%253D0Ahg5HLDczUKOdEZvSWttRWZhb2JicHEzajR0eHl6THc%2526pub%253D1%26up_title%26up_initialstate%3D%257B%2522yZoomedIn%2522%253Afalse%252C%2522colorOption%2522%253A%25223%2522%252C%2522yAxisOption%2522%253A%25223%2522%252C%2522showTrails%2522%253Atrue%252C%2522sizeOption%2522%253A%25224%2522%252C%2522time%2522%253A%25222000%2522%252C%2522dimensions%2522%253A%257B%2522iconDimensions%2522%253A%255B%2522dim0%2522%255D%257D%252C%2522iconKeySettings%2522%253A%255B%255D%252C%2522xAxisOption%2522%253A%25222%2522%252C%2522nonSelectedAlpha%2522%253A0.4%252C%2522orderedByY%2522%253Afalse%252C%2522orderedByX%2522%253Afalse%252C%2522yZoomedDataMin%2522%253A0%252C%2522xZoomedDataMin%2522%253A0%252C%2522yZoomedDataMax%2522%253A56.4%252C%2522duration%2522%253A%257B%2522multiplier%2522%253A1%252C%2522timeUnit%2522%253A%2522Y%2522%257D%252C%2522iconType%2522%253A%2522BUBBLE%2522%252C%2522xZoomedIn%2522%253Afalse%252C%2522uniColorForNonSelected%2522%253Afalse%252C%2522xLambda%2522%253A1%252C%2522playDuration%2522%253A15000%252C%2522yLambda%2522%253A1%252C%2522xZoomedDataMax%2522%253A2003%257D%26up__table_query_refresh_interval%3D300%26url%3Dhttp%253A%252F%252Fwww.google.com%252Fig%252Fmodules%252Fmotionchart.xml%26container%3Dspreadsheets&height=450&width=600"></script><br /> <br /> <span style="color: navy;">UK <a href="http://www.insolvency.gov.uk/">Insolvency</a> Service Statistics chart courtesy of <a href="http://www.cleardebt.co.uk/">ClearDebt</a></span>
ClearDebt will be regularly publishing similar information in a series of blog posts. Stay up to date by subscribing by RSS, Twitter or via email from the options on this page.