The number of personal insolvencies reaches record levels as consumers battle against unemployment and credit problems. 

The figures which were released by the government, through the Insolvency Service, show that bankruptcies and IVAs soared 28%.  These figures are issued every quarter and those for the third quarter of 2009 were released on the 6th November 2009. 

This year, the number of individuals in England and Wales who will end up either bankrupt or needing to propose an Individual Voluntary Arrangement, (often referred to as an IVA) is expected to climb to around 130,000, a massive increase of 23,000 compared to 2008.

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 that year.

So far in the first 9 months of this year 34,422 people compared to 39,115 for the whole of last year used the IVA procedure to write off a portion of their debts while another 64,146 people, also in the first 9 months of this year compared to 67,428 for the whole of last year were declared bankrupt. This also includes the 6,483 new DROs.  The Debt Relief Order is a new individual insolvency procedure which came into force on 6 April 2009 and which, subject to some restrictions, provides an alternative route into personal insolvency for certain categories of over-indebted individuals.

DebtWizard Comment

The current figures reveal that this is the highest number of insolvencies since the Insolvency Service started collating records back in 1960. See insolvency figures since records began.

This would have been even higher if the government had not withdrawn Simplified Individual Arrangements, (SIVAs) on 17th November last year.

The first 3 months after Christmas and the New Year sales are the industry’s busiest time as people get to grips with their debts and credit card bills. This is probably why that quarter experienced a higher number of bankrupts and it is likely to be reflected again next year.

I am concerned that some borrowers will just not be able to cope mentally and emotionally as the pressure builds from bills in the post to harassing telephone calls from lenders wanting their money. They need to go bankrupt to put an end to their misery but often cannot afford the £510 fee per person to do so. This fee can be reduced to £360 per person under certain circumstances, e.g. if they are on benefits. I have been lobbying the PM and the other political parties in an attempt to get a waiver on these fees: all my correspondence with the PM can be found here.

Also included in the figures are Debt Relief Order, DROs, which were introduced by the Government in April 2009. A DRO is designed to allow those with debts of less than £15,000 and minimal assets to write off their debts without entering into a full blown bankruptcy or having to go to Court. These are proving to only help a selected few and are totally ineffective in helping consumers because of the ridiculous qualifying procedure.

You can also watch my comments on this - debt relief orders on BBC News

You can find out more on DebtWizard guide to debt relief orders.

I am of the opinion this is just the tip of the iceberg as too many people have debts that they have no realistic hope of repaying and who should be proposing either an IVA or going bankrupt. Instead they are languishing in long term repayment programmes with no debt or interest relief.

My forecast for 2010 is for insolvencies to peak at around 200,000, which dwarfs the forecast for the preceding year. I am still on target for my estimate of 130,000 for this year.

As from April 6th this year the Insolvency Service has removed the mandatory requirement to advertise someone’s bankruptcy in the local paper. This massive change in bankruptcy policy, which regrettably has received little media attention, could impact on future insolvency figures as it is common knowledge that many consumers have put off going bankrupt for fear of having their name and address inserted in the local paper.

Some will argue that we need to have publicity in all cases of bankruptcy and that this change is making it all too easy for those in debt. I disagree as I see some of the pain and suffering of those who have lost control and the ability to repay. Instead they are plagued by debt collectors and harassed to pay monies they do not have, they become ill, depressed and often turn to alcohol, crime or gambling. 

One wonders whether it is some of those who can pay their debts who are the ones having a problem in accepting that the stigma of bankruptcy is fast disappearing and that in future a different view of those that need to go bankrupt will be taken.

View article 'Massive change in bankruptcy policy'.