At the end of last year and the start of this year there was a great deal of speculation over how consumers would manage their debt problems given the effects of the global credit crunch, the increase in living costs and bills, and higher mortgage costs, coupled with reduced availability to finance. It was predicted by many industry officials that insolvency levels would continue to rise over the course of this year, as more and more people walked away from their debts because they could no longer cope with their repayments.
However, a recent report has shown that there has actually been an unexpected drop in insolvency figures in England and Wales, and some officials have stated that this could be down to the fact that people are being far more cautious with their spending as a result of the ongoing global credit crunch. Insolvency levels in England and Wales have been falling for a number of years, but in the first three months of this year insolvency levels increased, and were expected to go on increasing due to the current economic and financial climate.
However, between April and June there was actually a drop in the number of insolvencies, falling by 2% to 24,553. The Insolvency Service has released these figures, and claims that the latest figures reflect a drop of 8.3% compared to the same period last year. The fall has been reflected in both the number of people filing for bankruptcy and the number of people entering into an IVA, or Individual Voluntary Arrangement, which is considered a softer alternative to bankruptcy.
However, whilst insolvency figures are down DMPs, which are informal arrangements made with creditors relating to repayments, are thought to be on the rise. Some officials have said that the drop in insolvency levels could be down to increased caution from consumers who are being as careful as they can over their spending as a result of the financial climate.
One official from the Insolvency Service stated: ‘I’m not sure the credit crunch is the sole factor in the decrease, but it is definitely affecting people’s decisions on how they should handle their debt. It is impossible to pinpoint one particular reason from these figures, but economic conditions and available credit are factors.’
Another industry official said that whilst insolvency levels have fallen ‘it’s important to bear in mind that this is from historically very high levels. The rates are still significantly higher than during the previous five years and I would expect this general upward trend in personal insolvencies to continue in the short to medium term.’
Over recent years IVAs, which are one form of insolvency, have been heavily advertised by a number of firms, who have been persuading consumers that they could write off a huge amount of their unsecured debt by entering into one of these agreements, but officials have warned consumers to think about the long term consequences before rushing into this course of action.
Tags: individual, June, rise, insolvency, IVA, insolvencies
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