Middle Aged turn to Insolvency

Figures from Experian show the overall number of personal insolvencies in 2010 fell slightly, but the biggest increase in new cases was among the middle classes

Married, middle-aged and middle-class Brits experienced the greatest increase in personal insolvency cases in 2010, according to research from Experian.

The credit information group said there were 157,741 personal insolvencies across England, Wales, Scotland and Northern Ireland in 2010 – 1% fewer than in the previous year.
Experian used specialist software to split the statistics, which include bankruptcies, individual voluntary arrangements (IVAs) and debt relief orders (DROs), into distinct demographic groups.

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It found that the biggest increase in new cases occurred among mostly married, middle-class and skilled working-class people of middle age who live with their children – a demographic which makes up 13.2% of UK adults. This group, which Experian said often work in city centre office jobs, accounted for 10.3% of personal insolvencies in 2010 – 45 basis points (0.45%) higher than the corresponding figure for 2009. Experian says this marginal rise is "significant".

Young, single professionals and middle-income earners had the second highest concentration of insolvencies last year – the demographic accounting for 3.99% of UK adults but responsible for 6.36% of insolvencies, up slightly on 2009 levels.

Married people approaching retirement age who live in communities historically dependent on mines, mills and assembly plants for their livelihood saw their share of insolvencies increase by 41 basis points in 2010 to 9.5% of all cases.

But Experian said the number of personal insolvencies among the most disadvantaged sections of society fell last year. People brought up in families with a history of welfare dependency represented 4.5% of the UK adult population and accounted for 8.1% of new insolvencies in 2010 – still the demographic with the highest concentration of insolvency cases – but the number of new cases fell by 19 basis points (or 0.19%) on the previous year.                                                             

People on limited incomes who rent small flats from local councils or housing associations also saw their share of insolvencies fall in 2010, by 21 basis points to 5.92% of all new cases.

Scotland was the worst-hit area for new insolvency cases in 2010. In Glenrothes, 89 individuals in every 10,000 households became insolvent, twice the average rate of the UK as a whole. In Kirckcaldy the figure dropped to 87 individuals, and in Livingstone to 86 individuals. Livingston was also the area which experienced the biggest increase in new cases, up 32 percentage points from 65 individuals per 10,000 households becoming insolvent in 2009.

In England, the highest number of insolvency cases occured in Washington, Tyne and Wear (77 cases per 10,000 households), Weston-super-Mare (73), Torquay (72) and Boston (71).

Kensington, Wimbledon, Richmond and Chelsea in London all had the lowest concentration of personal insolvencies. New cases in each area were down significantly on 2009 levels, with fewer than 20 individuals in every 10,000 households becoming insolvent.

Experian spokesman Simon Waller said: "While it is encouraging to see a small reduction in personal insolvency levels across the UK, there are certain sections of society that continue to face ongoing difficulties. The recession hit different people and communities at different stages, and some are finding it harder to shake off its effects.

"Lenders that understand their customers' credit behaviour, how it might change in the future and are able to react rapidly to signs of financial distress are best placed to manage their books in a responsible and sustainable way."

Meanwhile, latest figures from the Consumer Credit Counselling Service said it made the most bankruptcy recommendations to clients in Northern Ireland (12.9%), followed by London at 11.7%, the south-east at 11.5% and East Anglia and the south-west at 11.3%. The CCCS said London had the highest percentage of recommendations for DROs at 7.6%, followed by East Anglia at 7.1%, Yorkshire at 6.9%, the north-east at 6.7% and the south-west at 6.6%.

Changes to the insolvency rules that will allow individuals with pensions to take out a DRO are to be introduced on 6 April. Currently, DROs are unavailable to those with assets valued at more than £300, debts of no more than £15,000 and surplus income of less than £50 a month.

So if someone has a pension fund worth more than £300 they are currently not eligible to apply for a DRO, even if it is not receivable for many years. It means thousands of people on very low incomes have had their applications rejected on this basis.
The new legislation will allow those with larger pensions to take out a DRO, which imposes a 12-month ban on creditors being able to take action to recover their money without permission from the court. At the end of the period, if their circumstances have not changed, debtors will be freed from the debts that were included in the order.