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Individual insolvencies increased 10.6% compared with the previous quarter as Individual Voluntary Arrangements (IVAs) reach record high

Friday, 27th October 2017

There were 25,479 individual insolvencies in Q3 2017, consisting of 15,523 individual voluntary arrangements commonly referred to as (IVAs, 61% of the total), 6,274 debt relief orders (DROs ,25%) and 3,682 bankruptcies (14%). This led to Individual insolvencies increasing 10.6% compared with the previous quarter.

Consumer led bankruptcies

In Q3 2017, 2,930 bankruptcies were made on the application of the debtor, which was 1.6% higher than the previous quarter but 3.7% lower than the same quarter in 2016. The increase follows a change in April 2016 whereby those consumers wishing to petition for their own bankruptcy can only do so online to an adjudicator.

Creditor led bankruptcies

There were 791 creditor petition bankruptcies in Q3 2017, which was 5.2% lower than the previous quarter and 13.3% lower than the same quarter in 2016. In 2015 there was a change in the minimum debt a creditor must be owed to make someone bankrupt, which increased from £750 to £5,000 for petitions presented from 1 October 2015. This change has led to a decrease in the number of creditor petition bankruptcies.

The number of bankrupts that still pay their creditors

Bankrupts who can make reasonable contributions to their debts are required to do so under an income payments agreement (IPA). If they do not agree, the official receiver or trustee in the bankruptcy will apply to court for an income payments order (IPO). IPA or IPO payments come from surplus income – money left over from income after reasonable living expenses have been deducted. An IPA or IPO will normally be payable for 36 months. On average one in six bankrupts makes an income payment agreement or order.

Individual Voluntary Arrangements (IVAs)

An IVA is a legally binding agreement between a consumer and his or her creditors, usually store and credit cards, bank loans and overdrafts and is supervised by an insolvency practitioner. With an IVA you have more control over your assets and are less likely to lose your home, but it involves paying some of your debts usually over a period of five years and any remaining debts left in the IVA will be written off.

The number of IVAs in Q3 2017 increased 18.3% compared with Q2 2017 (which is the largest quarterly number of IVAs since records began in 1986.

Debt Relief Orders (DROs)

A Debt Relief Orders increased by 3.3% on the same quarter last year.

The impact of Debt Relief Orders (DROs) on bankruptcy numbers

Debt Relief Orders were introduced in 2009 and are another form of insolvency for those who have unsecured debts below £20,000, not a house owner, assets below £1,000 and under £50 pcm in disposable income. Those who propose a DRO do not pay anything towards their debts other than the admin fee of £90 and if their circumstances do not change after one year from the commencement of the DRO they are debt free.

Those consumers that qualify for a DRO would find this a more attractive scenario than the normal bankruptcy process. For the first time, in 2013, there were more DROs than bankruptcies.

The cost to go bankrupt England v Scotland

In 2009 the cost to petition for bankruptcy in England was £495, this increased by 37% in 2010 and as from 21 July 2016, this has increased further to £680. Meanwhile in Scotland it is just £200.

The fall in bankruptcy numbers after the 2010 increase in fees

Note in the table below that in 2009 (the year before the increase in fees) the number of those going bankrupt was close to 75,000 and that the number for 2016 was just below 15,000.

 

Year Total Bankruptcies DROs IVAs
2009 134,142 74,670 1,831 47,641
2010 135,089 59,194 25,179 50,716
2011 119,943 41,876 29,009 49,058
2012 109,640 31,787 31,179 46,674
2013 100,998 24,571 27,546* 48,881
2014 99,223 20,345 26,688 52,190
2015 79,996 15,828 24,175 39,993
2016 90,930 14,989 26,196 49,745
2017** 73,465 11,322 18,539 43,603


* For the first time, in 2013, there were more DROs than bankruptcies.

** Figures include the third quarter of 2017

We have a full list of all the consumer insolvencies since records began back in 1960, you can view them here Insolvency figures since 1960

Although some commentators see the falling bankruptcy numbers as a sign the economy is picking up, along with some improvement to consumer finances, some debt counsellors will argue that they are seeing many that need to go bankrupt but simply cannot afford the fee.

Source for numbers above www.insolvency.gov.uk

 

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