Trends in personal insolvency

01 July 2023

The fallout from the pandemic, the cost-of-living crisis and rising interest rates have taken a toll on many people’s finances. In this blog, we drill down into 2022 data to understand the growing number of individuals entering a personal insolvency process and the trends in which solution they are choosing to enter…

A steady rise

In 2022, 118,865 people entered a formal individual insolvency solution – the highest level for three years.

While bankruptcy numbers fell by 23.4% when compared to 2021, IVA (Individual Voluntary Arrangement) figures grew by 8.3% and DROs (Debt Relief Orders) by 20.3%, translating to an overall yearly rise in personal insolvencies of 8%.

These figures show that a large number of people in England and Wales entered an insolvency last year, and there’s no getting away from the fact that personal insolvency numbers are increasing.

What’s driving this? Partly the cost-of-living crisis and the impact that’s having on people’s finances, partly the fallout from the pandemic and the effect it’s having on businesses and their ability to pay staff, and partly the end of the Government’s pandemic support measures for individuals.

As well as these issues, we’ve seen changes in eligibility criteria for one key personal insolvency process, and the introduction of the Breathing Space Scheme, which have provided alternatives to the three traditional personal insolvency processes.

Bankruptcies fall, IVA numbers hold

Over the past three years, bankruptcy numbers in England and Wales have been falling sharply each year. While in 2019 just over 16,700 people entered the process, by 2022 that number fell to 6,679.

At the same time, DRO numbers have been on the rise. While DROs dropped around 25% from 2019 to the first year of the pandemic, they grew again to 24,222 in 2022.

A key driver of this rise is the change to the entry criteria in 2021 – something we supported – with the £10,000 increase in debt level making more people eligible for this particular personal insolvency process.

IVA numbers have increased too. Despite the pandemic, numbers for this process have risen every year for the past three years, with 77,940 in 2019, 78,441 in 2020, 81,189 in 2021 and 87,964 in 2022.

While total personal insolvency numbers have increased in consecutive years, the rise over the last 12 months strongly suggests the cost of living crisis is taking its toll on people’s finances and driving more people towards this particular process to help resolve their debts and improve their financial situation.

Time for change?

The increased demand for personal insolvency support coupled with the ongoing cost of living crisis suggests that the Government’s plan to review the Personal Insolvency framework is well-timed.

We responded to their call for evidence about this issue last year, and made a number of suggestions to help remove the barriers preventing individuals from accessing the right solution for their circumstances.

These included more freedom of movement between the personal insolvency solutions and lower entry fees, which could reduce the role cost plays when people are choosing to enter a particular process.

Early advice is key

Debt worries can be overwhelming and frightening and can leave those who are concerned about what they owe feeling helpless. We want to help people manage and overcome these feelings, encourage them to speak up about their concerns, and seek advice from the right sources.

R3 has produced a free guide to dealing with money worries, which you can download here.