Insolvency figure at eight-year low

Times Series: The number of people in personal insolvency in England and Wales is at an eight-year low, figures show. The number of people in personal insolvency in England and Wales is at an eight-year low, figures show.

The number of people being tipped into insolvency fell to its lowest levels in eight years in 2013, official figures show.

There were 101,049 personal insolvencies across England and Wales in 2013, marking a 7.9% decrease on 2012 and the lowest annual total since 2005, according to the Insolvency Service.

Within the figures, the number of bankruptcies dropped by more than one fifth in 2013 compared with 2012.

The number of firms being killed off in 2013 also dropped by 7.3% compared with 2012, with 14,982 company liquidations recorded over last year.

Insolvency Service deputy chief executive, Graham Horne said: "Today's statistics show that both company and personal insolvencies are down in 2013...

"In the final quarter of 2013 there were 7% fewer company liquidations and 4.6% fewer personal insolvencies.

"No one wants to see people and business getting into trouble and we are working to improve the insolvency regime to make sure it supports people and business in trouble while protecting creditors."

Last year also marks the first time that debt relief orders (DROs) have overtaken bankruptcies within the personal insolvency figures.

Bankruptcies, which are often seen as a "last resort" and an expensive process to go through, have been running at their lowest levels in over a decade for some time.

Their decline has coincided with the introduction of DROs in 2009. These are often dubbed "bankruptcy light" because they are aimed at people with relatively low amounts of debt of less than £15,000 but no realistic prospect of paying it off.

There were 24,536 bankruptcies recorded last year, down by 22.8% on 2012. Despite DRO numbers overtaking bankruptcies, they also saw a year-on-year decline. There were 27,546 DROs last year, marking an 11.7% fall on 2012.

Almost one quarter (24.4%) of bankruptcy orders in the third quarter of last year, the most recent period for which a breakdown is available, involved people who were self-employed, the Insolvency Service said.

This is a higher percentage than in earlier years and reflects a drop off in bankruptcies involving people who are not traders, the Service said.

Bankruptcies have been running at lower levels than individual voluntary arrangements (IVAs), which are the third official type of personal insolvency, for three years.

While the other two types of personal insolvency declined year-on-year, the number of IVAs increased by 4.9% on 2012 to reach 48,967 - making up almost half of all the personal insolvencies recorded in 2013.

IVAs are agreements with creditors to pay all or part of the debts. Regular payments are usually made over a five-year period to an insolvency practitioner, who divides them up between creditors.

Experts welcomed the decline in personal insolvencies but warned that the official figures do not reveal the full extent of people grappling with their debts.

Giles Frampton, vice-president of insolvency trade body R3, said t he official statistics are "only the tip of an iceberg".

He pointed out that debt management plans (DMPs) are not included in the figures.

Mr Frampton said: "The significant barriers to entry to IVAs, DROs, and bankruptcy can often mean insolvent individuals have no choice but to enter a DMP, take out a payday loan, or don't address their debts at all. Some DMPs see people stuck in debt for years at a time, with their repayments barely making a dent in what they owe."

Mr Frampton said that many people will have done their best to avoid insolvency in the run-up to Christmas " so there will be fallout from that in January and February".

He said personal insolvencies are still "astronomically high compared to recent decades".

In 2005, 67,584 personal insolvencies were recorded. The figure peaked at just over 135,000 in 2010 and since then the annual total has been on a steady downward path.

The low interest rate environment is seen as one of the main reasons why official personal insolvencies have remained lower than some might have expected in tough times.

The Bank of England base rate has been held at its historic 0.5% low for five years - but the improving economy and falling unemployment has prompted much speculation that interest rates could rise sooner than expected - which will push borrowers' costs up once more.

Mr Frampton said a possible rise in interest rates "will very likely have a knock-on effect on insolvency numbers".

He continued: "The emergence of individual voluntary arrangements as the most common insolvency route is symptomatic of people struggling with the rising cost of living.

"Bankruptcies are often triggered by 'big bang' financial events like job losses, but IVAs are more likely to be the result of a slow build-up of debt."

Mark Sands, personal insolvency partner at Baker Tilly, said: "T he good news is that we're back to pre-crash levels and we expect this to signal some stability going forward.

"However, our own figures indicate that there continues to be a significant north-south divide, with London registering only 15 personal insolvencies per 10,000 people, while the North East is double that figure at 30.

"There's also a danger that low interest rates and increasing consumer confidence may tempt some to borrow more than they can afford to repay, so we might not be quite out of the woods yet."

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