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Personal insolvencies spiral by 27.4%

Over 33,000 new insolvencies in third quarter

The number of individual insolvencies in England and Wales hit an all-time high of 33,073 in the second quarter of 2009, according to new statistics from the Insolvency Service.

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Decide which debt is the most expensive, and pay this off first

This total was an increase of 27.4% on the same period a year ago, made up of 18,870 bankruptcies (up 15.3% on the corresponding quarter of last year), 12,225 Individual Voluntary Arrangements (IVAs) (up 27.4% on 2008) and 1,978 Debt Relief Orders (DROs).

Debt relief orders – a new alternative to bankruptcy

The Debt Relief Order (DRO) is a new form of individual insolvency which came into force on 6 April 2009.  It provides an alternative route into personal insolvency for certain categories of over-indebted consumers.

Some of those who had a DRO approved in the second quarter of 2009 would have been declared bankrupt had the DRO route not been an option, leading to a lower increase in the number of personal bankruptcies in the three-month period than might otherwise have been the case.

Allocating blame for insolvency rise

The blame for the increased number of consumers entering insolvency has been laid by some commentators squarely at the door of the UK’s banks.

Debt expert Mike Thomas commented: ‘Bankruptcy figures are soaring as the public continues to struggle with the current economic climate. When are the major banks going to start to support consumers that are struggling with their debts, for example by making Individual Voluntary Arrangements more acceptable and try and work a way forward with the borrower rather than just sell the debt on for a fraction of what is owed?

‘High street banks and credit card providers continue to watch British consumers go bankrupt instead of encouraging other perfectly viable and fair alternatives such as IVAs or debt management plans. It appears UK banks are more interested in their shareholders then their borrowers. We have not reached the tip of the iceberg yet as a backlog of people who still haven’t declared themselves bankrupt will surface over the coming years.’

Which? debt advice

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Citizens Advice offer free and independent debt advice

Consumers struggling with debts should seek independent, free debt advice from organisations such as the Consumer Credit Counselling Service (0800 138 1111), National Debtline (0808 808 4000) or their local Citizens Advice Bureau (number in the phone book).

While bankruptcy, Individual Voluntary Arrangements (IVAs) and the new debt relief orders (DROs) could be a good solution for your needs, it is vital to get independent advice to find the solution that best fits your own circumstances.

Consumers should avoid commercial debt management companies – why pay for a service that is available better and free elsewhere?

For more detail, see the Which? guide to dealing with debt.

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