Number of personal insolvencies rises after bankruptcy threshold is raised

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 £5,000 from £750.

Insolvency Service figures show that between July and September, there were 24,251 personal insolvencies, an increase of 6% from 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.

A rise in IVAs

During the last quarter, bankruptcies rose by 7% compared with the second quarter; however, compared with a year ago, bankruptcies filed 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 the previous year. IVAs offer the debtor the opportunity to pay back the debts in a single monthly payment they can afford while minimising the risk of losing their house.

Stabilising economy

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’s been a steep increase in the number of IVAs being sought, making dealing with debt better for the debtor, the creditors 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 insolvency market will be.

In summary

Personal insolvencies jumped a fifth in the third quarter of 2016, while bankruptcies are down compared to a year ago. With the economy stabilising, there has been a rise in people taking out Individual Voluntary Arrangements (IVAs). However, with the uncertainty surrounding Brexit, this could all change in the next couple of years.