Personal insolvencies up by nearly 20%

The number of people going insolvent across England and Wales jumped by a fifth in the third quarter of 2016 compared with the same period a year earlier.

There were 24,251 personal insolvencies between July and September, marking a 19.3% increase compared with the third quarter of 2016 as well as a 6% rise on the second quarter of this year.

Within this total, bankruptcies, which are often seen as a last resort, increased by 7% compared with the second quarter, with 3,844 new cases recorded in the second quarter, the figures from the Insolvency Service show.

Despite the recent jump, bankruptcies are still down by 1.5% compared with a year ago.

The rising numbers of personal insolvencies have also been driven by an increase in individual voluntary arrangements (IVAs), which are agreements whereby money is shared out between creditors. There were 13,917 IVAs in the third quarter of 2016, 10.9% higher than in the second quarter and a 28.8% increase compared with the same period a year earlier. 

Meanwhile, there were 6,490 debt relief orders (DROs), marking a 3.7% decrease compared with the second quarter but up 15.3% compared with the third quarter of 2015.

DROs are often dubbed "bankruptcy light" as they are aimed at people with smaller amounts of debt but no realistic prospect of paying it off.

Over the last 12 months, one in 515 adults across England and Wales became insolvent. This was up from one in 541 in the 12 months ending in the second quarter of 2016 and it marks the second increase in a row in the insolvency rate.

Before the recent increases, personal insolvency rates had generally been on a downward path between 2010 and early 2016, the Insolvency Service said.

The figures also show company insolvencies increased overall.

An estimated 3,633 firms entered insolvency in the third quarter of 2016, which was 2.2% higher than in the second quarter and 1.1% higher than the same period a year earlier.

Some 632 companies were subject to compulsory liquidation in the third quarter of 2016, down 4.5% on the previous quarter but up by 2.4% on the same period in 2015.

A compulsory liquidation happens when a winding-up order is obtained from a court and a business is killed off.

Andrew Tate, president of insolvency and restructuring trade body R3, said: "A quarterly rise in corporate insolvency numbers is not necessarily an indicator of Brexit-related financial problems for UK companies. At least, not yet."

He continued: "So long as the economy continues to grow steadily, insolvency numbers are unlikely to rise too much, but, of course, that all depends on what impact Brexit has on the economy."

Looking at the personal insolvency figures, Mr Tate said the rising cost of living and reforms to make personal insolvency procedures more accessible have combined to push insolvency numbers upwards.

He said: "Individual voluntary arrangement numbers, which make up the bulk of personal insolvencies, are sensitive to the cost of living. IVAs fell rapidly from 2014 onwards as wage growth finally overtook inflation after the financial crisis. Having plummeted towards 0% in 2015, inflation has been rising again this year and IVA numbers have followed.

"Consumer debts are on the rise and savings rates are incredibly low so it's very easy for even a small financial shock to make someone insolvent."

Mark Sands, a personal insolvency partner at RSM, said the increase in personal insolvencies "might suggest that consumers are entering into a new period of problem debt".

He continued: "With the current strength of the pound threatening more significant price rises next year, those consumers who find that their wages don't keep up could begin to find themselves in difficulty."

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