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What’s behind the sudden spike in consumer insolvencies, last seen with the financial crisis in 2010?

Thursday, 2nd May 2019

Well that’s what I tried to get to the bottom off the other day when the question was put to me by Chris Berrow in the BBC Essex studio.

Let me explain first what insolvency is, as there are two legal definitions:

  • Where a business or individual’s liabilities (what you owe) exceed your assets (what you own)
  • Where you are unable to pay your debts as they fall due.

When a consumer goes insolvent in England and Wales, they are either going bankrupt, entering into a formal repayment plan to their creditors under an Individual Voluntary Arrangement (IVA) or they have entered into a Debt Relief Order, commonly referred to as a DRO.

The figures released by The Insolvency Service yesterday covered the first quarter insolvencies of this year for England & Wales and there were 31,527, these were the second-highest since the third quarter of 2010. This is an 16% increase on the same quarter for 2018.

If the numbers continue in the same way for the remaining quarters, and I expect them to, then the we are looking at close to 130,000 insolvencies for 2019. The only time they have been higher since records began in 1960 are 2009 (134,132) and 2010 (135,089).

Why the spike now?

In my opinion the figures we are seeing for the first quarter of this year represent the majority of those people who would have first experienced a ‘debt trigger’ many months if not years ago.

A debt trigger can be, redundancy, illness, birth of a child, relationship separation or a bereavement and for some just simply poor budgeting skills.

In my extensive experience in the debt management and insolvency market people just simply do not just make a knee jerk reaction and go insolvent. They take their time getting help with their debts and some just fail to action the recommendation given to them, leaving it as late as possible in the hope they can still turn their finances around. I’ve known some people to stall for over a year.

Should we be concerned?

With historic low interest rates and record levels of employment one would think these insolvency numbers would remain relatively static if not reduce rather than climbing.

My concern would be when interest rates do eventually rise and once the fallout of Brexit has been determined these two factors alone will drive up the insolvency numbers even further, not just for this year but for a good few thereafter. 

My point is, the current quarter of insolvencies just record the numbers, not when and why the individual got into trouble, the next set of numbers due on 30th July, will be eagerly awaited.

Read article - Consumer insolvencies reach highest Q since 2010

Media

Mike Thomas was in the BBC Essex studio commenting on the insolvency numbers, you can listen to his interview on the following link BBC Essex Radio 6pm 30 April 2019

 

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