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Insolvency figures are the lowest for 3 years
Page last updated Friday, 01 May 2009
The Insolvency Service recently released figures which showed that the number of individuals declaring bankruptcy jumped by 20 per cent in the last three months of 2008 compared to the same period the year before. But what if I were to tell you that the combined figures of personal bankruptcies and Individual Voluntary Arrangement, (often referred to as an IVA ), are actually lower than 2007 and 2006, I have detailed the figures below which were taken from the insolvency service website.
| Year | Total | Bankruptcies | IVAs |
| 2006 | 107,288 | 62,956 | 44,332 |
| 2007 | 106,647 | 64,481 | 42,166 |
| 2008 | 106,544 | 67,428 | 39,115 |
Insolvency involves an individual either going or having been made bankrupt, or successfully proposing an IVA, which is seen as a less stringent form of insolvency. An IVA allows a borrower to enter into a repayment programme, usually for 5 years, and interest and charges are frozen with the remaining debt written off upon completion of the arrangement.
According to Accountants KPMG, the average figure owed by a person entering into an IVA over the past year was £47,000 and they planned to pay just 38 per cent of this sum, equivalent to £18,200 per borrower.
Whilst the average IVA sum owed was £47,800 however, KPMG estimates that more than 2,500 people entered into IVAs with debts exceeding £100,000 this year.
The full list of insolvencies since records began in 1960 can be found: here
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DebtWizard Comment
So how is it that during such a period of recession we are seeing such a marginal decrease in the number of insolvencies when common sense would suggest that we should be seeing a significant increase?
My belief is that the latest insolvency figures should be treated with suspicion as there is strong evidence that they do not reflect the true picture of the number of those in financial difficulty. I believe that this is largely due to the unwillingness of Banks to agree to allow those in trouble to propose Individual Voluntary Agreements (IVAs).
An IVA freezes an individual's debt situation and allows them to repay their debts at an affordable monthly rate. An IVA helps someone to get back on their feet without having to declare bankruptcy.
The banks don't like IVA's s because they show up as 'toxic debt' on their balance sheets and by setting high 'hurdle rates of acceptance, for example by rejecting an IVA proposal if the repayment offered is below 40 pence for every pound owed, they are able to deter individuals from taking up IVAs. Quite often perfectly reasonable applications have been rejected on this basis.
This results in individuals who should otherwise be organizing an IVA and drawing a line under their debt, being held in debt limbo. They are unable to pay back their borrowings and instead see their debts mounting due to accumulating interest payments. But, they don't get counted as an insolvency statistic.
Northern Rock were amongst the first to adopt this approach back in Aug 2006 when they decided to adopt a policy of simply rejecting each and every IVA proposal. I reckon that around 20,000 IVAs were held back because of Northern Rock's stance and I wrote to the Prime Minister pointing out the problems that their policy was causing for ordinary people. Thankfully Northern Rock has now changed their policy but some major banks, for example HSBC, still have high 'hurdle rates' in place and some banks and credit card providers are still looking to vary or reject quite reasonable IVA applications.
Personally, I am astounded that the analysts have missed the obvious point that despite the prevailing deteriorating economic climate, the insolvency figures for the year 2008 are lower than those for 2007 and 2006.
You can view the letters to the PM, H M Treasury and Northern Rock here