Increase in insolvency figures expected

Updated: 

The number of people whose finances have deteriorated so much that they have become insolvent is expected to show an increase.

The Insolvency Service will release figures for the second quarter of 2016 on Thursday, showing how many people went bankrupt, how many took out debt relief orders (DROs) and how many took out individual voluntary arrangements (IVAs) across England and Wales.

Experts are expecting to see a spike in IVAs in Thursday's figures. IVAs are agreements where money is shared out between creditors.

Robert Beat, a personal insolvency partner at RSM, expects to see around 12,000 IVAs in the figures, while Mark Sands, a council member at the Insolvency Practitioners Association (IPA), also predicts an upswing, with "perhaps more than 10,000 IVAs" in the figures.

Mr Beat said: "While bankruptcies and debt relief orders have remained relatively flat over the last quarter, there appears to have been a spike in the number of people entering into IVAs as a means of dealing with problem debts.

"Quite why this is the case isn't clear, but debt advisers may have been signposting more people towards IVAs rather than towards more informal debt management plans."

Bankruptcy numbers have generally been on a downward path in recent years. DROs are aimed at people with low amounts of debt but no realistic prospect of paying it off.

The eligibility for DROs was changed in 2015, making them more of an alternative to bankruptcy, which is often seen as a "last resort".

Previously, only people with debts below £15,000 could apply for a DRO but in October last year the limit was increased to £20,000.

Mr Beat expects there to be around 3,750 bankruptcies and 6,750 DROs in Thursday's figures.

Meanwhile, Mr Sands said: "I expect that bankruptcies in the last quarter will be around 4,000, so not a material change from recent quarters, although any slight increase may be a result of the easier online application process for debtors.

"I expect that debt relief orders, the alternative to bankruptcy for those with low value debts, will still show an increase on last year as a result of the change in criteria in October 2015 - so around 6,750."

Low interest rates have been helping to keep the cost of people's debts relatively low, but with economic uncertainty following the vote to leave the EU there have been concerns about the potential impact on the labour market.

The Insolvency Service's most recent figures showed in total just over 20,380 people went insolvent between January and March.

The figures were made up of 6,722 debt relief orders (DROs), 3,744 bankruptcy orders and 9,916 IVAs.