The number of people in England and Wales becoming insolvent due to unmanageable debt hit a seven-year high in 2018, figures show.
According to the Insolvency Service, personal insolvencies totalled 115,299, which is a 16.2% increase over 2017’s figures.
The figures have been elevated by the use of Individual Voluntary Arrangements (IVA’s) which have hit a record level. Under an IVA, an insolvency practitioner will help strike a deal with creditors, which allows companies to pay off their debts over a fixed period. Once approved, all interest on the unsecured debt is frozen.
In 2018 there were 71,034 IVAs, which is an increase of 19.9% from 2017.
There has been concern amongst debt organisations that IVAs have been acquired where they aren’t appropriate.
“The market for IVAs is dominated by a small number of service providers who are very market savvy and do not wait for people in debt to come to them – they advertise widely and have relationships with other debt advisors who feed them ‘hot leads’,” said Mark Sands, partner at advisory firm Quantuma.
In addition, an increase of 11.2% in Debt Relief Orders over 2017 was recorded and a 9.8% increase in Bankruptcies. Debt Relief Orders were introduced in 2009 and debts must not exceed £20,000. If an application is accepted, debts are frozen for a year and then written off. In Bankruptcy, an official receiver is appointed to sell assets to realise the debt. Bankruptcy orders affect credit ratings for at least 6 years. However, the debt will be written off after 1 year
The official figures meant that in England and Wales, 1 in 401 adults became insolvent as opposed to 1 in 466 during 2017.
At the time of writing (February 2019), the format to the UK’s exit of the EU is unknown. It’s highly likely the uncertainty of Brexit may have contributed to the escalation in Insolvencies. However, at Griffin James, we endeavour to absorb trends and findings and will continue to publish articles to help keep abreast of Brexit and the UK economy as a whole.