Figures show steep rise in recorded personal insolvencies

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The number of people whose financial situation became so bad that they went insolvent jumped by 13% year-on-year in 2016, official figures show.

Some 90,930 personal insolvencies were recorded across England and Wales, marking a 13.1% uplift compared with 2015, the Insolvency Service said.

The upswing was driven by an increase in people taking out individual voluntary arrangements (IVAs) - an agreement whereby money is shared out between creditors.

Having fallen in 2015, IVA numbers jumped by 23.2% in 2016, with 49,745 cases recorded.

The official figures are also made up of bankruptcies and debt relief orders (DROs) - a type of insolvency often known as "bankruptcy light" which is aimed at people with lower levels of debt that they cannot pay off.

Bankruptcy numbers fell in 2016 compared with a year earlier, with 14,989 bankruptcy orders recorded, down 5.4% on 2015. 

There were 26,196 DROs in 2016, an 8.4% increase on 2015.

A recent increase in the amount of debt that people taking out a DRO were allowed to have has enabled more people to take out DROs instead of going bankrupt, which is often seen as a "last resort". 

The Insolvency Service said, despite the upswing in personal insolvencies, the total was still the second lowest figure seen in 11 years.

Its figures also show an estimated 16,502 companies entered insolvency in 2016, a rise of 12.6% on the year before.

This increase was mainly down to a large number of connected companies entering insolvency in the final quarter of last year following some rule changes, the Service said.

The estimated number of companies entering insolvency in the final quarter of 2016 jumped by 53.8% compared with the previous quarter, with 5,564 cases recorded.

But if the connected companies were excluded from the figures, the increase would have been 4.2% compared with the previous quarter, the Insolvency Service said.

When these connected companies were also removed from the annual figures, the underlying number of company insolvencies was "broadly unchanged" from a year earlier, with a 0.3% increase compared with 2015, the report said.

Mark Sands, a personal insolvency partner at RSM, said: "In 2015 we saw the lowest levels of personal insolvency in over a decade, but the latest figures for 2016 show that the tide has now turned.

"Despite record low interest rates and high employment levels during the year, many more people found that they could no longer keep on top of their debts."

Low interest rates have been keeping borrowers' repayments relatively affordable, but with an uncertain economy ahead there have been signs of households starting to feel a bigger squeeze from rising living costs.

Recent Bank of England figures have also shown a strong growth in consumer credit, prompting charities to warn the figures should be ringing "alarm bells".

Referring to the number of companies going insolvent, Andrew Tate, president of insolvency and restructuring trade body R3, said: "The corporate insolvency numbers have been skewed by a wave of personal service companies being closed in the last quarter ... when you look beyond that though, 2016 had more or less the same number of insolvencies as last year."

He said that while businesses are benefiting from record low borrowing costs, the fall in the pound since the summer will have been a "shock" to some firms.

Mr Tate said: "Almost half our members have said Brexit has come up in discussion with struggling businesses since June."

He continued: "2017 will be an important test: many larger firms will have been protected from the pound's fall by currency hedges or long-term fixed-price contracts, but these will unwind or end this year.

"Businesses have been buoyed by resilient consumer spending since the EU referendum but much of this is on the back of increased borrowing - it's not clear how sustainable this will be."