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Insolvencies set for record total Insolvencies at new record high
(about 2 hours later)
Official figures are expected to show a record number of people in England and Wales going insolvent. A record number of people in England and Wales went insolvent between July and September, official figures show.
PricewaterhouseCoopers (PWC) forecast that about 27,000 people will have gone insolvent between July and September. The government's Insolvency Service said 27,644 people went bankrupt or entered into Individual Voluntary Arrangements (IVAs) to manage debts.
The figure includes bankruptcies and those entering Individual Voluntary Arrangements (IVAs) to manage debts. Overall, insolvencies are 55% higher than during the same three-month period in 2005 and are widely expected to top 100,000 for the entire year.
If the prediction turns out to be accurate, it will represent a slight rise on the previous quarter, but a 50-60% increase year-on-year.
Experts have blamed greater personal debt for the rise in insolvencies.Experts have blamed greater personal debt for the rise in insolvencies.
Marketing IVAs Controversial
PWC said it expected that bankruptcies would be flat, but that there would be a sharp increase in IVAs. Significantly, the insolvency figures show that the proportion of people taking out IVAs has risen relative to those going bankrupt.
No one sells bankruptcies, but there are lots of firms selling the IVA concept Pat Boyden, PWC href="/1/hi/business/6109330.stm" class="">Q&A: Rising Insolvencies If the current trend continues, the number of IVAs will overtake the number of bankruptcy next year Malcolm Hurlston, CCCS href="http://news.bbc.co.uk/1/shared/spl/hi/business/debtcheck/html/index.stm" class="">Take our debt test
In total, 15,416 people went bankrupt between July and September. At the same time, 12,228 people entered into IVAs.
A year ago, just over 12,000 went bankrupt and fewer than 6,000 entered into an IVA.
The sharp rise in IVAs has been controversial.
IVAs are heavily marketed by providers, who make money from acting as go-betweens for lenders and borrowers.IVAs are heavily marketed by providers, who make money from acting as go-betweens for lenders and borrowers.
Some debt charities and lenders have criticised IVA providers for marketing them to people who would be better off either going bankrupt or coming to an informal arrangement with creditors. Some debt charities have criticised IVA providers for marketing them to people who would be better off either going bankrupt or coming to an informal arrangement with creditors.
"The lenders seem to feel that the growth in IVAs is due to the marketing. No-one sells bankruptcies but there are lots of firms selling the IVA concept," PWC partner Pat Boyden told BBC News. "If the current trend continues, the number of IVAs will overtake the number of bankruptcy next year and that is an indication that the IVA solution is becoming more popular than is good for people," said Malcolm Hurlston, chairman of the Consumer Credit Counselling Service (CCCS), a debt charity.
Mr Boyden added that the problem of indebtedness seemed to be easing of late. Lenders, too, are concerned at the rise in IVAs.
"Between 2000 and 2005 we saw a doubling of debt and a similar increase in insolvency. "Several lending institutions have raised concerns at these record levels and have commented on the limited extent to which the advice sector is regulated," Stephen Treharne, head of personal insolvency at accountancy firm KPMG, told BBC News.
"However, in recent times, people have been a bit more cautious and there has been a flattening-out of debt and bankruptcy.
"This seems to be reflected in the number of bankruptcies, which are flat, but not in IVAs, which have risen... Marketing seems to be important in this," Mr Boyden added.
In response, a leading IVA provider, Thomas Charles, told BBC News that they were reacting to a real consumer need and not pushing the IVA concept inappropriately.In response, a leading IVA provider, Thomas Charles, told BBC News that they were reacting to a real consumer need and not pushing the IVA concept inappropriately.
I fear that more consumers will fail to meet their minimum monthly credit card and loan payments Stephen Treharne, KPMG How to manage your debts
"If somebody in debt talks to a debt advisory firm, they should be given a full understanding of all the options - including bankruptcy, IVAs and informal arrangement plans," said James Falla, managing director of Thomas Charles."If somebody in debt talks to a debt advisory firm, they should be given a full understanding of all the options - including bankruptcy, IVAs and informal arrangement plans," said James Falla, managing director of Thomas Charles.
"The key is, advice has to be measured, correct and well-targeted. Nobody can enter an IVA without the acceptance of the creditors and that ultimately is the backstop," he added."The key is, advice has to be measured, correct and well-targeted. Nobody can enter an IVA without the acceptance of the creditors and that ultimately is the backstop," he added.
Rate riseRate rise
Problems for debtors may just be about to get worse.Problems for debtors may just be about to get worse.
Next week, the Bank of England will decide whether UK interest rates should rise, thereby pushing mortgage repayments higher.Next week, the Bank of England will decide whether UK interest rates should rise, thereby pushing mortgage repayments higher.
Most analysts predict that an interest rate rise from 4.75% to 5% is on the cards.Most analysts predict that an interest rate rise from 4.75% to 5% is on the cards.
"It is difficult to predict what the impact of a rate rise will be on insolvencies, but household budgets will be squeezed and it may increase difficulties for some," Mr Boyden added. "I fear that more consumers will fail to meet their minimum monthly credit card and loan payments and will have to consider taking formal steps to deal with their over-indebtedness," Mr Treharne said.Have you been affected by issues covered in this story? Send us your comments and experiences using the form blow.
Have you been affected by issues covered in this story? Send us your comments and experiences using the form blow.
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