Friday, 4 February 2011

Why have bankruptcies fallen so sharply?

There were just over 12,000 bankruptcies in the last three months of 2010. While this is a large number, it is nearly 2,000 fewer than the previous quarter and 5,000 fewer than in the same period one year before.

Why the drop in the run-up to Christmas and year-end 2010? Several reasons are being suggested to me.

1. The cold weather. People couldn't get to court and courts were closed. People couldn't even travel to Citizens Advice offices to talk about bankruptcy, Individual Voluntary Arrangements, Debt Relief Orders or less formal repayment schemes.

2. The shift to the new Debt Relief Orders from bankruptcy. DROs cost less and are suitable for people with debts of up to £15,000 and hardly any assets. They too were down on the quarter but they were well up on 2009.

3. Some lenders are being more lenient, realising that in the current climate they stand to gain very little when a client goes bankrupt. So they are negotiating less formal repayment schemes. It might seem more sympathetic but it perpetuates the debt problem.

4. This winter, more than ever before, people have been putting off dealing with their debt problems until the New Year.

The downside of all these explanations is that none of them points to unmanageable debt becoming much less of a problem. Insolvencies could even bounce back in the current three months. It would be brave to bet against them staying at or near record levels throughout 2011.

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