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Insolvencies rise to new record Insolvencies rise to new record
(30 minutes later)
The number of people who were declared insolvent in England and Wales rose to a new record of 107,000 last year.The number of people who were declared insolvent in England and Wales rose to a new record of 107,000 last year.
That was a 59% increase on the year before, when 67,500 people went bust.That was a 59% increase on the year before, when 67,500 people went bust.
The rise was mainly due to a sharp increase in the number of people entering individual voluntary arrangements (IVAs).The rise was mainly due to a sharp increase in the number of people entering individual voluntary arrangements (IVAs).
The number of individual insolvencies also rose in Scotland and Northern Ireland, though not as fast as in England and Wales.The number of individual insolvencies also rose in Scotland and Northern Ireland, though not as fast as in England and Wales.
It is widely expected that the rising trend of personal insolvencies will continue this year.It is widely expected that the rising trend of personal insolvencies will continue this year.
But Pat Boyden, an insolvency specialist at the accountants PricewaterhouseCoopers doubted that the increase would be as fast as in 2006.
"I wouldn't predict a huge increase this year - though the recent increases in interest rates may put the squeeze on unsecured borrowing," he said.
Earlier this week it was revealed that 2006 saw a 65% rise in the number of homes being repossessed by lenders, albeit at a very low level.Earlier this week it was revealed that 2006 saw a 65% rise in the number of homes being repossessed by lenders, albeit at a very low level.
Bankruptcies, in which debtors typically lose all their assets, rose last year by 34% in England and Wales to 62,900. IVAs slow down?
But although these still outnumbered those in IVAs, the number of people choosing an IVA as a route out of insolvency more than doubled to 44,300. Despite the extensive publicity given recently to IVAs, the rise in their number almost ground to a halt in the last three months of last year.
All creditors are worried about people dumping debt without them being in genuine financial hardship Pat Boyden, PWC
There were just 4% more of them than in the previous three months.
By contrast, the last quarter of 2006 saw a sharp rise in bankruptcies, which were up by nearly 10% over the three months.
One possibility is that some debtors have been forced to chose bankruptcy recently because of a harder attitude being adopted by some lenders towards IVA agreements.
Banks such as HSBC and Northern Rock are now demanding a much higher level of prospective repayment before they will agree an IVA with a customer.
The industry standard is a repayment of 25p in the pound, but HSBC now asks for 40p in the pound.
"All creditors are worried about people dumping debt without them being in genuine financial hardship," said Mr Boyden.
Personal debtPersonal debt
The growing number of insolvencies is partly the inevitable fallout from the rising level of personal debt in the UK.The growing number of insolvencies is partly the inevitable fallout from the rising level of personal debt in the UK.
HOW TO GO BUST Bankruptcy: the traditional way of escaping overwhelming debt. Ends after one year, but you are likely to lose all your assets including your house to pay something to the creditorsIVA: A deal between you and your creditors, overseen by an insolvency practitioner. Less stigma, less chance of losing your home, but involves paying some of your debts in one go or over a number of years Q&A Personal insolvenciesHOW TO GO BUST Bankruptcy: the traditional way of escaping overwhelming debt. Ends after one year, but you are likely to lose all your assets including your house to pay something to the creditorsIVA: A deal between you and your creditors, overseen by an insolvency practitioner. Less stigma, less chance of losing your home, but involves paying some of your debts in one go or over a number of years Q&A Personal insolvencies
"Citizens Advice bureaux dealt with 1.4 million debt problems in the last financial year," said Sue Edwards of Citizens Advice.
"There are thousands of people who have substantial debt and will never be able to pay it off," she added.
In the past eight years the amount of non-mortgage debt held by people in the UK has doubled to £212bn, stimulated by the growth of the economy and relatively low interest rates.In the past eight years the amount of non-mortgage debt held by people in the UK has doubled to £212bn, stimulated by the growth of the economy and relatively low interest rates.
However the past couple of years has also seen a rapid rise in the number of "debt management" companies who specialise in organising IVAs for their customers.However the past couple of years has also seen a rapid rise in the number of "debt management" companies who specialise in organising IVAs for their customers.
They are widely credited - or blamed - for encouraging people to use IVAs as a way of resolving their debts.They are widely credited - or blamed - for encouraging people to use IVAs as a way of resolving their debts.
Their activities are being closely monitored by the authorities, and the Office of Fair Trading recently wrote to 17 of them, warning them to stop publishing misleading advertising on TV and in newspapers.Their activities are being closely monitored by the authorities, and the Office of Fair Trading recently wrote to 17 of them, warning them to stop publishing misleading advertising on TV and in newspapers.
According to the accountants KPMG, lenders such as High Street banks wrote off £1.4bn last year as a result of customers proposing IVAs.According to the accountants KPMG, lenders such as High Street banks wrote off £1.4bn last year as a result of customers proposing IVAs.