Fears raised as personal insolvencies jumps
30/07/2014
Personal insolvencies have increased at the quickest rate since 2010, according to government figures.
The figures showed that 27,029 people in England and Wales became insolvent between April and June 2014, which is a 5.1% increase on the same period 12 months ago.
This has led experts such as Brian Johnson, of the chartered accountancy firm HW Fischer, claiming that a “personal insolvency storm” could be on the horizon if the Bank of England goes ahead with any plans to increase interest rates.
What is to blame for rising personal insolvencies figures?
Whilst personal insolvency figures are on the rise in England and Wales, figures in Scotland were the opposite, as the number of people becoming insolvent fell to the lowest level since 2005.
One possible explanation for this is a difference in law between the two countries, as new laws mean it is now much easier to access an Individual Voluntary Arrangement (IVA) in England and Wales.
An IVA is a formal arrangement where a person can declare insolvency, but still avoid bankruptcy. Essentially, as an alternative, a person will agree a formal repayment proposal to pay their unsecured debts via an ‘insolvency practitioner’.
It has been claimed that as IVAs have been made easier to access, more people have been using them to write off smaller debts. Previously, debts of £30,000 to £40,000 were most common in IVA applications, but now people appear to be applying for IVAs with debts as little as £5,000.
Additionally, others have claimed that an improving economy could be an ironic factor in the rising number of personal insolvencies, as more people are confident that they can afford a debt repayment plan.
Andrew Tate, deputy vice-president of insolvency trade body, R3, said: "As the economy starts to grow, people feel more confident about dealing with a five year repayment plan".
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