Phil MeekinView Profile
The latest insolvency figures were released recently and they show a rise in personal insolvency figures jumping a fifth from the same quarter last year. These increases come a year after the threshold for bankruptcy was raised to £5000 from £750.
Insolvency service figures show that between July and September, there were 24,251 personal insolvencies, an increase of 6% on the second quarter of 2016. Insolvency experts attributed this to the rising cost of living combined with changes to the rules of insolvency and price rises from the falling pound driving up prices of everyday goods.
During the last quarter, bankruptcies rose by 7% compared with the second quarter; however compared with a year ago, bankruptcies filled are down by 1.5%. This could be a result of the bankruptcy threshold rising last year which has seen a sharp upsurge in the use of individual voluntary arrangements (IVAs).
The growth in the use of IVAs is clear to see from the insolvency figures showing their use was 10.9% higher than last quarter and over a quarter more widely used than in the same period last year. IVAs offer the debtor the opportunity to pay back the debt(s) in a single monthly payment they can afford while minimising the risk of losing their house.
It also helps that the economy is holding up at the moment making an IVA a more attractive prospect. In a stable economy where jobs are quite safe, regardless of pay, it allows people to have the confidence to pay off their debts monthly rather than being completely unable to pay.
However, this is something that could change over the next couple of years with the uncertainty over Brexit as Brian Johnson, insolvency partner at HW Fisher told The Guardian; “How the economy performs in the next year or two, and the direction of interest rates, will have a material impact on personal insolvency levels moving forward,”
A year after the bankruptcy threshold was raised it is having a positive effect on lowering the number of declared bankruptcies as desired. As a result, there has been a steep increase in the number of IVAs being sought which makes dealing with debt better for the debtor, the creditor(s) and the taxpayer.
A weaker pound or a more unstable economy could tip the balance back towards an increase in bankruptcies but only time will tell what the new trends in the personal insolvencies market will be.