Bankruptcies fall to 15-year low

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Published: Wednesday 29th October 2014 by The News Editor

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The number of people going bankrupt has fallen to a 15-year low in England and Wales according to official figures, in further signs of a brightening economy.

Figures from the Insolvency Service show that 4,886 bankruptcy orders were made between July and September, marking a fall of almost one fifth (19%) compared with the same period a year ago and the lowest level recorded since the first quarter of 1999.

Overall, 24,837 people went into some form of insolvency in the third quarter of this year, marking an 8% decrease on the previous quarter and the lowest figure recorded since last winter.

Bankruptcies, which are one of three types of formal personal insolvency, tend to be seen as a “last resort” for people with catastrophic debt problems.

They have been on a general downward path since the introduction of another type of insolvency called debt relief orders (DROs), which are aimed at people with smaller amounts of debt but no realistic prospect of paying it off.

The new figures showed that 6,808 people took out a DRO between July and September, which was a 3% fall compared with the previous quarter.

The third type of personal insolvency is individual voluntary arrangements (IVAs). The number of IVAs being taken out reached a record high in the second quarter of this year, but the new data shows that they fell back by 9% in the third quarter, with 13,143 cases recorded.

IVAs usually require people to pay back as much money as they can afford to creditors over a five-year period.

Overall, personal insolvencies had been creeping upwards over the previous two quarters, but the Insolvency Service said the latest figures show they are now back on a “generally decreasing trend”.

The latest figures mean that the rate of people going insolvent per head of the adult population is at its lowest level since 2006.

In the 12 months to September, one in 446 adults, representing just over 0.2% of the population, became insolvent.

Insolvency Service deputy chief executive Graham Horne said anyone who is experiencing financial difficulties should get help early from a body such as the Government-backed Money Advice Service.

With expectations that the Bank of England base rate is likely to start moving off its historic 0.5% low at some point next year, people have been warned to prepare for the prospect of their borrowing costs increasing.

Giles Frampton, president of insolvency professionals’ trade body R3, said a 2015 rise in interest rates “might put too much pressure on some household finances”.

He said R3’s research found that 44% of British adults are worried about their level of debts, while one in four 25-to-44-year-olds have five or more debts to their name, “so falling insolvency numbers do not necessarily mean the UK’s personal debt issue is going away”.

Matthew Chadwick, head of personal insolvency at BDO, said some households are not necessarily feeling the benefits of economic improvement yet.

He said: “Jobs figures are up, mortgage rates are down – and becoming more competitive – and interest and inflation rates are stable, which in theory should boost economic health and confidence.

“However, these positives are counterbalanced by sluggish or non-existent wage growth, lower-than-expected tax revenues – suggesting that the new jobs being created may not all pay well – and market volatility caused by worries over the Chinese and Eurozone economies.

“Paradoxically, we may see personal insolvencies rise as confidence returns. Then, people may feel more comfortable with taking out new credit, and lenders more comfortable with collecting old debts.”

Published: Wednesday 29th October 2014 by The News Editor

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