Latest debt statistics offer a glimmer of hope

Wednesday 9th March 2011

The latest crop of numbers from Credit Action, released last week, show that there has been an overall drop in debt problems in the UK since the same time period in 2010. 

The striking statistics show that big steps have been taken in the tackling of debt in the past 12 months, however, most still provide food for thought.For example, the total number of purchases made using cards daily stands at a whopping £1,153,000,000, while someone is declared insolvent or bankrupt at least every five minutes.According to their latest monthly release, the number of people made redundant each day remains high, despite being down from 1,732 to 1,589, and 833,000 people were shown to have been unemployed for more than 12 months.Joanna Parsley, of Credit Action, said: “Monthly debt stats are a great tool for getting an overall picture of the state of play in the UK, when it comes to all things debt and money related. March’s stats show that compared with this time last year there are less people going through insolvency. In 2010 every 3.7 minutes someone went through insolvency. We now know that the rate has slowed to every 4.28 minutes which is good news for consumers.”The Citizens Advice Bureau (CAB) now deal with deal with 8,004 new debt problems each day, a decrease from the 9,500 that was reported this time last year.Young adults, from the age of 20-29 are the most likely to be in the red with 46 percent of this age group unable to stay in the plus. They are also the group most likely to remain in their overdraft, with 16 percent unable to get out of it.Joanna continued: “We also know that compared to this time last year total levels of personal debt have dropped – total household debt was £58,040 and it’s now £57,635. A fall of £405 is a significant drop and indicates that consumers have been trying to pay down their debts over the past year especially when interest rates are at historic lows.”Banks and building societies write off £24.88 million of loans daily and every 17 minutes a property is repossessed in this country.“Looking ahead this year looks to be difficult for many consumers. With high inflation and the cost of living rising - energy, petrol and food prices all on the up - consumers will continue to see their budgets squeezed. This coupled with unemployment fears and many changes to tax and benefits that will take place in April will see almost all household budgets change.“It’s so important that we look to budget our finances and review this regularly to ensure we’re on top of our money and in control of our spending. “Getting on top of our finances now and seeking free and independent help if needs be is a priority to ensure that consumers are not weighed down by the burden of over-indebtedness.”337 people every day of the year will be declared insolvent or bankrupt. This is equivalent to one person every 59 seconds during a working day.
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Monday 2nd August 2010

Mortgage broker ordered to repay £1.5m of client money used to pay off debts
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Barclays lifts lid on banking write-offs
Wednesday 20th February 2008

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2010 Q4 Personal Insolvency Statistics – some not so obvious conclusions

Today, Friday 4 February 2011, The Insolvency Service published the last set of insolvency figures (Q4) for 2010.

At first glance, there appears to be little to say, except that personal insolvencies were down a bit between Q4 2010 and Q4 2009 (13.6% down, in fact) but are pretty much the same over the year (just under 1% up – so not worth thinking about, really).

I took a slightly longer  look at the figures though and a couple of things struck me.

Firstly, that we may have reached a tipping point in the structure of personal insolvency in the UK. Second, that the Official Receiver has really upped it’s game when it comes to squeezing money out of bankrupts.

Since the year dot, bankruptcies have been the most common personal insolvency procedure. Until 2009, they always outnumbered all other personal insolvency procedures.

Not any more. In 2010 Individual Voluntary Arrangements (IVAs) and Debt Relief Orders (DROs), added together, outnumbered bankruptcies for the first time. IVAs  have risen eightfold over the decade and now represent 38% of personal insolvencies (21% in 2001) – so many more people are choosing a procedure that takes considerable personal effort, but which has less drastic consequences, sometimes, than bankruptcy and which represents a real effort to pay what they owe – something creditors are still not doing enough to recognise.

DROs are big news. The DRO is  a flawed bankruptcy lite – for those who can’t afford to go bankrupt. They’ve rocketed away since their introduction two years ago, and there were 25,179 last year. I suspect rising unemployment may have something to do with this – but not as much as there just being a new, simple procedure in place for people who have low income and low debts.

The real change is one that, I think will be welcomed by government – and built on. Bankruptcy is being eroded at the top by a procedure that represents a fair deal between debtor and creditor and at the bottom by one which makes dealing with debt a simpler and  less costly option for those with low income and few assets. Once they sort out the pension issue I think we will see the number of DRO’s rocket away.

As to building on it, well, it seems to me that the government is concerned to ensure that those debtors who can pay, should pay which brings me to…

Stealthily, things are changing… Income Payments Orders and Income Payments Agreements have risen very significantly in the past few years. More and more people are finding that the one year bankruptcy is accompanied by a (usually) three year order to pay substantial amounts back to their creditors every month.

It used to be thought that the Official Receiver wouldn’t have the time or inclination to do this. Boy were we wrong. One in four bankruptcies now has an IPA attached to it. That’s interesting too – IPOs are voluntary. IPAs, which have almost died out, are voluntary (ok-ish, doubtless the OR or trustee advises you that you’d be wise to agree). So, one-in-four bankrupts are agreeing to repay from future income over three years.

Seems to me that a balance is being sought: Creditors should accept that they need to make it possible for consumers to deal with unsustainable debt. And debtors are finding out that they will be asked to do the best they can to repay as much as they can, in a reasonable time period.

I suspect we’ll see further steps in this direction as the BIS/Treasury consultation on credit and debt regulation goes forward.

By Andrew Smith and is filed under Debt Data, Government policy on debt.
Tagged with: Bankruptcy, bankruptcy income payment agreement, Insolvency figures, Insolvency Service, insolvency statistics, IVA.
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Posted in: conclusions,Insolvency,obvious,Personal,Statistics