IVAs driving personal insolvency rise – IVA Advice

Personal insolvencies through Individual Voluntary Arrangements (IVAs) are rising again despite previous optimism their numbers declining, says debt management company IVA-Advice.co. Figures for the second quarter of 2013 released by the Insolvency Service show a 3% rise in personal insolvencies during quarter 2 compared to the previous quarter, although the figures are still 6% lower than the same quarter in 2012. An increase in the number of IVAs appear to be the basis for the sudden rise – there were 12,116 personal insolvencies by IVA, which accounts for 47% of the 25, 717 insolvencies awarded during the quarter. The remaining awards were made up of 6,469 bankruptcies, a drop of 3% since the last quarter and 20% over the same period last year, and 7, 132 Debt Relief Orders (DROs), a drop of 1% since last year and 10% over last quarter.

While DROs have significantly impacted on the number of bankruptcies awarded since they were introduced in 2009, possibly due to their inexpensive nature for those with few assets and income, they still run second to IVAs which appear to the first choice for many seeking a legally-binding debt management solution. This could be due to the fact that IVAs are not as final as bankruptcies, which still has a stigma attached to it, and a lifespan of five years with leftover balances written off by creditors. Alec Pillmoor, Baker Tilly’s head of personal insolvency, said the official figures mask the “very real financial struggle” that many families are still facing. “It is encouraging to see that the number of both Bankruptcies and Debt Relief Orders has continued to fall in each quarter for the past year. The continued use of Individual Voluntary Arrangements shows that many people are finding a positive way to deal with their financial issues.

“However, these numbers should be treated with a degree of caution. Inflation has been running at a higher level than the increase in earnings for the last three years. One recent survey suggested that fewer families are making monthly debt repayments (a 12% fall to 45%) and it is possible that the headline numbers mask the very real financial struggle that many households face to meet their everyday expenditure and people may be storing up problems for the future.”

Corporate insolvencies also show a similar story of quarterly increases but overall lower figures when compared to the same time last year. There were 3,978 compulsory and creditors’ voluntary liquidations in England and Wales, which is 10.5% higher than quarter 1 but overall down by just over 2% compared to Q2 2012. Other corporate insolvencies have decreased by 25.6% compared to the same quarter last year, and comprised 192 receiverships, 622 administrations and 160 company voluntary arrangements.

A spokesperson for debt management company IVA Adviser said: “It’s no surprise to see IVAs increasing. The second quarter of the year generally shows a spike as individuals overspend at Christmas and things come to a head a few months later. However, the figures don’t take into account how many people embarked on DMP or other non-insolvency debt solution. The bigger picture may show that far from the recent decline of personal insolvencies being an indicator or debt levels receding, the true level of debt may be masked by an unknown increase in DMPs.”