Official figures today confirmed the continuing fall in the number of bankruptcies as families cut back on their borrowing and those who do hit the buffers opt for cheaper ways of getting protection from creditors.
Total personal insolvencies fell by 11 per cent in 2011 to just under 120,000 in England and Wales, according to the Insolvency Service.
Within than total, the number of bankruptcies dropped sharply, by 29 per cent, to 41,845.
It's not unexpected for financial failures to drop back after a recession, following an initial surge, as households avoid new borrowing and banks and credit card companies restrict their lending.
There's also a tendency to put off applying for help until after Christmas and New Year celebrations, so some debt experts predict a rise in insolvencies in the first few months of 2012.
However, most dramatic has been the recent jump in Debt Relief Orders, a cheaper alternative to bankruptcy which doesn't involve going to court.
While bankruptcies declined last year, Debt Relief Orders rose 15% to 29,949.
DROs are designed for debtors with hardly any assets and debts of less than £15,000.
At the same time, many people in difficulty, along with small traders, have been opting been opting for Individual Voluntary Arrangements, under which payments to creditors can be reduced - rather than choosing bankruptcy.
Despite the overall fall last year, total insolvencies continue to run at more than twice the levels seen before the credit crunch and the lending boom which preceded it.
When talking about debt the only measure that is worth discussing is the total number of insolvencies. Bankruptcies may have fallen but DRO’s are just fast-track bankruptcy with a shiny new badge.
ReplyDeleteWith thousands of people currently turning to payday lenders that charge extortionate interest rates just to cover daily living expenses and mortgage payments another huge debt problem is building up. Someday soon we will see a huge spike in repossessions and insolvencies when this debt time bomb explodes.
Paul Broderick, author of The Bankruptcy Diaries
Thanks Paul - good point.
ReplyDeleteSimon, consumer bankruptcies are down because of the ridiculous cost for an individual to find to go bankrupt, currently £700.
ReplyDeleteThe fee went up 37% from March 2010 and has now made it impossible for many thousands of consumers that need to go bankrupt can no longer do this.
The DRO level of £15,000 was set EIGHT years ago, I know they only came about in 2009.
Many consumers do not qualify for a DRO because their car may be worth more than £1,000, or if they are a house owner, irrespective if the house is in negative equity.
The CAB have said that around 40% of the people they see that need to go bankrupt cannot afford the fee, the CAB are currently handling just under 9,000 NEW debt cases every working day.
So we have a major back log building of desperate and worried consumers that in my view is being let down by this government.
I wrote to the PM re the fees and am pleased to say that changes are afoot in the way consumers pay the fees, but this is some way off.
DebtWizard