Personal insolvencies,debt experts warn 'many will go bust next year'

The number of individuals  who became insolvent fell in the last three months, official figures showed today. 

The Insolvency Service reported there were 30,219 personal insolvencies in the July, August, September, down from 30,513 in the three months to June. 

Within that figure, the number of bankruptcies continued to decline, and was 31 per cent lower than the year before.

Some experts warn that the figures show a change in the type of people becoming insolvent. 

Bev Budsworth, managing director debt management company, The Debt Advisor, said: ‘Levels of personal insolvencies are not as high as last year but we are still seeing over 330 people a day being declared insolvent or bankrupt.’

‘The real change that we are seeing is the demographics of the people that are finding themselves with levels of serious debt – we are seeing a strong increase in the ‘impoverished middle classes’ coming to us for help as the situation becomes more and more desperate!’

According to the figures Individual Voluntary Arrangements (IVA’s), were up nearly 1 per cent on that basis and there was a 7.6 per cent increase in Debt Relief Orders (DRO), taking them to a new record level.

Bankruptcies are seen as a 'last resort' - you can forced to sell your home (to release equity), you will lose any savings or valuable possessions and it will be advertised in newspapers. 

IVA's are a less severe method of dealing with insolvency. It will usually last longer than bankruptcy - often up to 5 years, but it is very unlikely that you will have to sell your home. It will not be advertised in newspapers but your name will appear in an publicly available insolvency register. 

DRO's are another form of insolvency - first introduced in 2009 - they are only available to people who meet a strict level of criteria. 

They are aimed at helping the very poorest members of society who are not home-owners, who have no realisable assets of more than £300, who are typically dependent on state benefits or very low incomes, who are in debt due to a crisis or a life accident, who still wish to pay their debt, but simply cannot afford to. 

In April this year a change in DRO rules meant that anyone who had built up value in a pension scheme could apply for debt relief provisions – increasing the overall number of those eligible. 

This means that If you have not retired, but have a private or occupational pension fund, in most cases the value of your pension fund won’t count towards the £300 limit.

The falling total number of bankruptcies since 2009 is mainly due to the introduction of debt relief orders. 

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However, debt charity Consumer Credit Counselling Service (CCCS) has warned against complacency, it estimates that there are 6.2 million financially vulnerable households. 

Delroy Corinaldi, director of external affairs at CCCS, said: 'There are millions of people teetering on the brink financially, whose household budgets are getting harder to manage every month. They are struggling against pressures such as high inflation, wage freezes and redundancy.

'I fear that many will go insolvent over the next year. The key message to anyone who is finding it hard deal with their finances is to seek help as soon as they realise they have a problem. The sooner they deal with their problem, the more can be done to help them.'

Chris Nutting, director of personal insolvency at KPMG, said: 'Today’s figures show that the latest bankruptcy numbers are falling to levels last seen in 2004. And whilst this may seem to be good news on the face of it, it fails to reflect the number of people with severe personal indebtedness.  

'There is a growing number of individuals with large amounts of unsecured debt looking for some resolution of their financial problems which have simply not gone away. 

'And while creditors are willing to set up repayment plans with debtors, the continual pressure on household budgets due to the price increases of fuel, energy and food means that even agreed repayment plans will be broken.  

'This is likely to result in more debtors eventually turning to a formal insolvency procedure to resolve their financial problems.'

From the site : This is Money