Insolvency figures ‘to get worse’

The number of personal insolvencies may have fallen, but it could soon rise now the UK is back in recession.

Insolvency Service figures for the first three months of 2012 released last week showed fewer individuals in such a situation than in previous quarters, but uSwitch.com predicted the numbers will rise due to more expensive mortgages and continued wage freezes.

Personal finance expert at the site Michael Ossei said: "While this news may be a glimmer of hope in the same week that it was announced the UK has entered a double-dip recession, it's likely the light will be extinguished in the coming months."

He noted that ten mortgage providers have announced rate rises, while interest-free deals are starting to disappear.

"The next insolvency figures are likely to tell a different story," he predicted.

Mr Ossei's warning comes after Insolvency Service figures showed that 28,723 insolvencies occurred in the first quarter of 2012, down 4.7 per cent from the 29,064 seen in the final three months of 2011 – itself the lowest total for last year.

Of those who did become insolvent, the first quarter figures revealed a continuing trend for consumers to choose individual voluntary arrangements (IVAs) over bankruptcy.

Not only were there more IVAs (11,694, compared to 9,132 bankruptcies), but the tally had risen 8.1 per cent year-on-year, whereas bankruptcies were down by 27.2 per cent.

Neither step is one that should be taken lightly, with both having a long-term negative effect on the ability to get future credit, although those who have got into difficulty with borrowing may be happy to do without it for some time.

While bankruptcy does mean clearing all debts, it leaves restrictions on any kind of financial services, whereas with an IVA a reduced amount is paid to creditors over a period of five years or less, with any remaining debt written off at the end of this period.

One good reason for taking an IVA is that it is a confidential agreement, whereas a bankruptcy can be publicised by the local media and will automatically be recorded in the London Gazette.

But good advice should always be sought before deciding which is the best option.

Posted by Paul Thacker