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Personal insolvency trends: The unseen picture?

Personal insolvency trends: The unseen picture?

17 November 2023

Personal insolvency figures have fallen in 2023, but demand for support is higher than ever. In this blog, we break down the personal insolvency landscape in the first three quarters of the year and explore why these numbers appear to be falling…

The IVA impact

In the first three quarters of 2023, there were 78,696 seasonally adjusted individual insolvencies in England and Wales, made up of 50,376 individual voluntary arrangements (IVAs), 22,669 debt relief orders (DROs) and 5,651 bankruptcies. This represents a 12.1% drop compared to the same period in 2022 (89,558 total personal insolvencies) and a 16% decrease from pre-pandemic figures in 2019 (93,688).

The yearly fall in personal insolvencies has been driven by a 24.2% drop in IVA numbers, and there are a few different reasons why we might be seeing this.

One factor is the recent ban on referral fees for IVAs, which has affected the volume of debt advice available.  Another factor has been the unstable economic conditions in the UK, with people unwilling to commit to a five-year IVA given the strain their spending is currently under. And, as we’ll discuss below, the debt threshold for a Debt Relief Order has changed, and some of the people who could have entered an IVA may well have turned to this process as an alternative.

Bankruptcies and DROs rise

While in the first three quarters of 2023, IVA numbers have fallen compared to the same period in 2022, both bankruptcy and DRO numbers have risen.

In Q1-Q3 2023, bankruptcy numbers increased by 11.6% when compared to the same period in 2022, while DRO numbers rose by 25.6%. This rise may suggest that people in England and Wales are facing higher levels of debt and are exploring alternative solutions to resolving their financial concerns.

DROs numbers have risen consistently since 2021, rising from 14,256 in Q1-Q3 2021 to 18,042 in Q1-Q3 2022, to 22,669 in Q1-Q3 2023. This increase is likely due to changes in the qualifying criteria for the process, implemented in June 2021. The changes raised the maximum debt level to apply for a DRO from £20,000 to £30,000, and rose the minimum asset levels, motor vehicle value, and monthly surplus levels need to qualify, allowing a greater number of people to consider a DRO.

A missing puzzle piece?

While official statistics show a decline in the number of people entering a formal personal insolvency solution, the current financial landscape tells a different story.

Since the end of the pandemic, personal finances have been hit month after month, from rising costs for the essentials like food, energy and rent, soaring interest rates, and a rise in the cost of fuel. Official personal insolvency numbers may have fallen, but the cost-of-living crisis has created a demand for debt advice that is constantly rising.

And while the personal insolvency statistics record the total number of people entering a formal insolvency solution, this data doesn’t capture the amount of people opting for informal solutions such as debt management plans, so the true scale of the UK’s debt issues remains unknown.

On top of this, a lack of funding for free debt advice services coupled with higher demand has led to much longer wait times for people that are seeking support. This growing delay has widened the gap in the statistics, leaving the true scale of the problem unaccounted for.

While the future of personal insolvency remains uncertain, a recent R3 survey found that 85% of members expect the number of people entering a formal personal insolvency solution to rise in 2024. As more individuals look for financial help in England and Wales, this prediction seems realistic – unless we see a big improvement in the UK's economy.

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