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Personal insolvency rises by 28%
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A record number of people were declared insolvent in England and Wales in the third quarter of 2009, according to recent figures from the Insolvency Service. If you're faced by serious debt problems we take a look at what options are available to you
As the recession shows little sign of ending, it comes as no surprise that recent figures from the Insolvency Service reveal there were 35,242 cases of personal insolvency in the third quarter of this year. This is a rise of 28.2% compared to the same period last year and an increase of 6.6% on the previous quarter.
The number of personal insolvencies has risen dramatically since 2007 and this can be largely attributed to the recession. Thousands of people have found themselves out of work and stuck with outstanding debts. With banks tightening their borrowing criteria since the onset of the credit crunch, and the property market crash leaving many people with homes they can neither sell nor draw equity from, many people have been left with no option but to declare themselves insolvent.
dealing with debt
When it comes to insolvency, most people will automatically think of bankruptcy, but there are other options available to individuals who find themselves in a position of extreme debt.
Bankruptcy: This is the traditional way to clear debts and is offered to individuals who cannot pay debts "as and when they fall". The aim of bankruptcy is to free the debtor from the pressures of creditors and to ensure that any assets (including your house and investments) are distributed fairly among your creditors. The order lasts for a year
Individual voluntary arrangement (IVA): And IVA is a formal agreement between the debtor and the creditors. The IVA outlines how the debt is to be repaid and is overseen by an insolvency practitioner. Compared to bankruptcy, there is less stigma attached to an IVA, as well as less chance of losing your home
Debt relief orders (DROs): Introduced in April 2009, DROs are designed to help people who have relatively low debt, little surplus income and few valuable assets – and who have no realistic chance of paying off their debts within a reasonable time. The DRO lasts for 12 months, during which time any creditor named on the order cannot take any action to recover their money unless they have permission from a court. After the year the individual will be freed of the debts included in the order (unless their circumstances have significantly improved).
Figures from the Insolvency Service revealed that 18,347 people were declared bankrupt in the third quarter of the year, up 6.4% for the same period last year. There were 12,390 IVAs, a rise of 20.9% year on year, and 4,505 DROs, a rise of just over 25% compared to the previous quarter.
With the average household debt in the UK (excluding mortgages) standing at £9,161 according to debt advice website Creditaction.org.uk, DROs are fast becoming a viable alternative to bankruptcy for many. If your debt has got out of control, could you be eligible?
By Emma Lunn and Julie Richardson, last updated 6 November 2009
