The latest personal insolvency figures for England and Wales, released today, 4 November 2011, show that around a third of bankrupts are now being forced to make sizeable payments towards their debts every month, for up to three years.

Bankruptcy – harsher for longer?

Earlier in the year we commented on the stealthy rise in the number of bankrupts that are being required to make payments under an Income Payments Order or Agreement (IPO/IPA).

Well, the rise is not so stealthy now. In the last three months, the proportion of bankrupts with an IPO or IPA has shot up from 19% to 33%.

Back in 2001, and for several years following, only one in ten bankrupts had to find a contribution for their creditors every month – now it’s a third; It may well be that the government has decided bankruptcy should be a less attractive option, and that efforts have to be made to ensure a better return for creditors.

Creditors becoming more aggressive?

The proportion of bankruptcies that are started by creditors has shot up too, by 13% in the last quarter. So, more bankrupts are finding themselves pushed into the procedure, rather than choosing it as the best way to resolve their debts. Colleagues I’ve talked to have advanced a number of reasons why:

It could be that the rise in self-employed debtors is partly to blame (about one in five bankrupts are sole traders), but as this has been a slow rise, it can’t tell the full story.

Colleagues feel they’ve seen more petitions started by HMRC (which would indicate self-employed debtors) and by local councils seeking Council Tax arrears – that could be anybody’s problem.

Others think that creditors are seeing bankruptcy as a productive solution to recovering their debt, especially if the debtor has a house with substantial equity (rare these days, but it does happen).

Whatever the reason, it’s increasingly likely that for a small minority of debtors, if you fail to repay what you owe, you could find a creditor’s threat to make you bankrupt becomes reality.

Bankruptcy has always been the toughest debt solution. But some have seen it as a way of walking away from their debts and putting it all behind them. For many, that is no longer true.