Bankruptcies fall but 
families still struggle

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PERSONAL insolvencies have fallen to a four-year low, official figures showed yesterday, but experts warn that households are still under intense pressure.

Within these figures, bankruptcies are at their lowest since 2003, with 8,088 bankruptcy orders made in the second quarter of this year, representing a 27 per cent drop on a year ago, the Insolvency Service report showed.

The service said that bankruptcy numbers have been affected by the introduction of debt relief orders (DROs), which have risen to reach a similar level to bankruptcies for the first time. DROs, which were introduced in 2009 and are often dubbed “bankruptcy light”, reached a new high in the second quarter of this year at 7,956, an increase of almost 10 per cent on a year ago.

Overall, there were 27,390 personal insolvencies in England and Wales in the second quarter of this year, a 10 per cent decrease on the same period a year ago and the lowest figure since the summer of 2008.

Individual voluntary arrangements (IVAs), which are also included in the figures, were down nearly 7 per cent year-on-year to 11,346.

Bankruptcy numbers have now been lower than IVAs for more than a year.

Analysts have said the official figures are the tip of the iceberg for people struggling with debt, with an estimated six million households living on the edge. Household budgets have come under intense pressure from high living costs, rising unemployment and below-inflation wage rises, although there are some signs of improvement as inflation eases off.

DROs are a formal process aimed at people who have more modest levels of debt but no realistic prospect of paying it off and the maximum allowable debt is £15,000. IVAs involve an agreement between someone who is struggling and their creditors that they will pay their debts to a specialist who will share the money out between creditors.

Yesterday’s figures also showed that there were 4,115 company liquidations in the second quarter of 2012, a 2.4 per cent drop on a year ago. The number of companies which had receivers, administrators or company voluntary arrangements (CVAs) increased by 6 per cent compared with a year ago.

There were 1,310 such companies in this category in the second quarter of this year, but the figures were inflated by 156 companies in the Southern Cross group of care homes having CVAs approved in June.

Nick Reed, director and personal insolvency expert at PwC in Leeds, said: “It is pleasing to see an overall fall in personal insolvencies, but this shouldn’t distract from the fact that the overall numbers are still significant.

“This is being driven by a reduction in real disposable income and salaries not keeping pace with inflation, coupled with uncertain employment prospects. Clearly, consumers are still struggling with high levels of debt and a lack of refinancing options is exacerbating the problem.”

Robert Adamson, chair of R3 in Yorkshire and partner at Mazars, said the falling levels of personal insolvencies “could be a sign that there is less credit out there so people are having to act more responsibly, and tighten their belts”.

But he added: “However, we should be aware of the group just outside the official figures. Roughly one in 10 of GB adults can only afford the interest charges on their credit cards, according to figures from insolvency trade body, R3.”

Mr Adamson said: “Over the past two years formal insolvency numbers have actually decreased but we know concern over debt is an issue for over half of GB adults, according to R3. This is backed up by the finding that 51 per cent now struggle to payday (up from 39 per cent at the start of 2012) – so this worry is more than just an uncomfortable nag at the back of one’s mind. The real-time consequences of this means almost 4 million (3,915,866) GB adults are now considering taking out a payday loan, while a quarter of us currently have no savings.”

On the picture in the North of England, Alec Pillmoor, partner and head of personal insolvency at Baker Tilly, who is based in Hull, said “We are still seeing people who are having a very hard time with the debt but people are not borrowing as they were, they have been paying the household debts down and that reflects in the overall fall. A lot of people seem to be in the debt management plans.”