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Consumer insolvencies reach highest Q since 2010

Tuesday, 30th April 2019

Total individual insolvencies 31,527 in England & Wales in Q1 2019, were the second-highest since Q3 2010, reports The Insolvency Service. This is an 16% increase on the same quarter for 2018. Consumer insolvencies combine Individual Voluntary Arrangements (IVAs), Bankruptcy and Debt Relief Orders (DROs).

Individual Voluntary Arrangements (IVAs)

There were 20,235 IVAs in the first Q of 2019, compared with the same quarter last year, an increase of 23.7%.

Last year saw the highest annual level 71,034 recorded since IVAs were first introduced in 1986.

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. Read more on Individual Voluntary Arrangement (IVA) Information / Advice

Consumer bankruptcy numbers

There were 4,162 bankruptcy orders in the Q1 of 2019 (15,082 - 2017).

In Q1 2019, 3,357 bankruptcies were made on the application of the debtor. This was 0.1% higher than the previous quarter and 5.4% higher than in Q1 2018. This form of bankruptcy has been on an increasing trend since 2016.

There were 831 creditor petition bankruptcies in Q1 2019, 0.6% higher than the previous quarter but 10.8% lower than the same quarter in 2018.

This annual number of bankruptcies is still low when compared to 2009 when they peaked at 74,000.

Whilst some debt advisors believe the high cost to the consumer in England and Wales to go bankrupt is a major factor the introduction of debt relief orders (DROs) in 2009 is likely to have affected the numbers. Another point is the recent change in the amount the debtor must owe before a creditor can petition, this has now risen from £750 to £5,000. Read more Consumer bankruptcy

Note in the table below the numbers going bankrupt in 2009 compared to 2010 - 2017.

Mike Thomas, founder of DebtWizard.com said:

"The number of consumers experiencing financial difficulty is creeping up as confirmed by figures released for the first quarter of this year. If the remaining three quarters of the year are similar then we will have levels last seen just before the banking crisis of 2009 and 10."

"It's not easy to accurately pinpoint the reason for the rising numbers, consumers don't just suddenly take a knee jerk reaction to go insolvent, often the reason for the debt problems occurred many many months earlier, sometimes several years ago."

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

There were 7,040 DROs in Q1 2019 an increase by 6.5% on the same Q last year.

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. Read more Debt Relief Orders (DROs).

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 most common insolvency procedure for consumers

IVAs are the most popular form of insolvency 65% (60% in 2017), followed by DROs 22% (25% in 2017) and bankruptcy orders at 13% (15% in 2017).

In the 12 months ending Q1 2019, the rate of insolvency in England & Wales was 1 in 388 adults or every 10,000 adults in England and Wales, 25.8 entered insolvency. This was up from 24.9 per 10,000 in the 12 months ending Q4 2018.

The insolvency rate is based on a rolling rate of the last 12 months. Therefore, despite a fall in the number of individual insolvencies in the last quarter, the rate has increased as there were more insolvencies from Q2 2018 to Q1 2019 than in the 12 month rolling period from Q1 2018 to Q4 2018.

The current individual insolvency rate remains elevated compared with rates of less than 10 per 10,000 adults before 2004.

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 numbers for 2016, 2017 and 2018 average 15,000.

 

Year Total Bankruptcies IVAs DROs
2009 134,142 74,670 47,641 1,831
2010 135,089 59,194 50,716 25,179
2011 119,943 41,876 49,058 29,009
2012 109,640 31,787 46,674 31,179
2013 100,998 24,571 48,881 27,546*
2014 99,223 20,345 52,190 26,688
2015 80,404 15,845 40,384 24,175
2016 90,657 15,044 49,417 26,196
2017 99,219 15,105 59,220 24,895
2018 115,299 16,582 71,034 27,683
2019** 31,527 4,162 20,315 7,040


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

** First quarter January - March 2019.

Next insolvency numbers due 9.30am 30 July 2019.

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

Source for the insolvency numbers above The insolvency Service

Blog

Mike's blog is on the link below

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

Media

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

 

 

 

 

 

 

 

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