Tuesday, 8 February 2011

Any good news hidden in these diabolical insolvency figures?

A record 135,000 insolvencies in one year.
And the climate is getting even more hellish: the average household owes £57,000, prices are rising, incomes are being squeezed.
So insolvencies could be even worse this year.

This is the grim analysis which you have seen all over the papers. And yet, there may be something positive hiding in the figures.

Remember first why we have insolvency procedures. There is the debtor who can't afford the repayments and the creditor who isn't getting the debt serviced or returned. It's a dead end: no one can go anywhere.

So we have a set of tools to clear the way. They range from informal negotiations, right through to bankruptcy, which has to be sanctioned in court.

The debtor can start again, after meeting strict conditions over a set period. The creditor may retrieve some of the borrowings, or possibly nothing at all. But the financial position is crystallised.

The newest tool is the Debt Relief Order. It is a mild form of bankruptcy, designed for people with virtually no assets and debts of less than £15,000.

A DRO is simpler, doesn't involve going to court and it's cheap. Surprisingly enough, some people simply can't afford to go properly bankrupt because of the fees involved.

A closer look at the latest insolvency figures shows a revealing trend. There was a sharp drop in bankruptcies in the last three months of 2010 compared to the year before, accompanied by a rise in DROs.

It could be a positive development: more people finding an easier way to make a fresh start.

The number of bankruptcies was still very high. In three months, 12,000 individuals were marooned on a financial desert island. They had to endure shame and heartache. Some of their creditors may have been brought down by the shock as well.

Insolvencies are running at more than twice the level of five years ago and we could see more horrific totals. But, of course, they are doing the job they were designed for. They are clearing a way.

When I spoke to a friend who went to court last week to have his bankruptcy rubber stamped, he explained how much of a relief it was to complete the process. He can get on with working and earning.

It's hard to find a bank which will open him an account, but soon he will be able to borrow again and start to rebuild his financial reputation. In 6 years his credit reference will be clear.

His own personal recovery is underway.

Maybe we are seeing the beginnings of a more general recovery. Maybe you can spot it in these insolvency figures and the agonising method the economy uses to turn itself over, trying to find a more comfortable position in which it can carry on.

No comments:

Post a Comment