Today, Friday 4 February 2011, The Insolvency Service published the last set of insolvency figures (Q4) for 2010.

At first glance, there appears to be little to say, except that personal insolvencies were down a bit between Q4 2010 and Q4 2009 (13.6% down, in fact) but are pretty much the same over the year (just under 1% up – so not worth thinking about, really).

I took a slightly longer  look at the figures though and a couple of things struck me.

Firstly, that we may have reached a tipping point in the structure of personal insolvency in the UK. Second, that the Official Receiver has really upped it’s game when it comes to squeezing money out of bankrupts.

Tipping point?

Since the year dot, bankruptcies have been the most common personal insolvency procedure. Until 2009, they always outnumbered all other personal insolvency procedures.

Not any more. In 2010 Individual Voluntary Arrangements (IVAs) and Debt Relief Orders (DROs), added together, outnumbered bankruptcies for the first time. IVAs  have risen eightfold over the decade and now represent 38% of personal insolvencies (21% in 2001) – so many more people are choosing a procedure that takes considerable personal effort, but which has less drastic consequences, sometimes, than bankruptcy and which represents a real effort to pay what they owe – something creditors are still not doing enough to recognise.

DROs are big news. The DRO is  a flawed bankruptcy lite – for those who can’t afford to go bankrupt. They’ve rocketed away since their introduction two years ago, and there were 25,179 last year. I suspect rising unemployment may have something to do with this – but not as much as there just being a new, simple procedure in place for people who have low income and low debts.

The real change is one that, I think will be welcomed by government – and built on. Bankruptcy is being eroded at the top by a procedure that represents a fair deal between debtor and creditor and at the bottom by one which makes dealing with debt a simpler and  less costly option for those with low income and few assets. Once they sort out the pension issue I think we will see the number of DRO’s rocket away.

As to building on it, well, it seems to me that the government is concerned to ensure that those debtors who can pay, should pay which brings me to…

Income Payments Agreements

Stealthily, things are changing… Income Payments Orders and Income Payments Agreements have risen very significantly in the past few years. More and more people are finding that the one year bankruptcy is accompanied by a (usually) three year order to pay substantial amounts back to their creditors every month.

It used to be thought that the Official Receiver wouldn’t have the time or inclination to do this. Boy were we wrong. One in four bankruptcies now has an IPA attached to it. That’s interesting too – IPAs are voluntary (ok-ish, doubtless the OR or trustee advises you that you’d be wise to agree). IPOs, which have almost died out, are compulsory and require a court order . So, one-in-four bankrupts are agreeing to repay from future income over three years.

Seems to me that a balance is being sought: Creditors should accept that they need to make it possible for consumers to deal with unsustainable debt. And debtors are finding out that they will be asked to do the best they can to repay as much as they can, in a reasonable time period.

I suspect we’ll see further steps in this direction as the BIS/Treasury consultation on credit and debt regulation goes forward.