Personal insolvencies in the third quarter of 2016 jumped nearly 20 percent, year-on-year.
This figure was not exposed to a great deal of public debate last month when the official statistics from the Insolvency Service were released.
The number marks an increase of six percent on the second quarter of 2016, but the news was submerged in the Brexit judgment furore and the Bank of England’s more optimistic growth forecast for next year
A certain level of increase would have been reasonably expected, given the online adjudicator process for bankruptcies, fee rises for creditors and a change to the threshold for debt relief orders (DROs).
But it’s not clear if this explains completely a near 20 percent year annual rise in the third quarter – or indeed five consecutive quarters of increases.
A total of 24,251 people become insolvent in the three months up to the end of September, a factor the Insolvency Service said was driven by a rise in individual voluntary arrangements (IVAs), which came out at 13,917. This more than was 10 percent higher on the previous three months and almost 30 percent more year-on-year.
Bankruptcies made on the petition or application of the debtor were also up, reaching 2,988 cases. This was 12 percent higher than the previous quarter.
The option of avoiding court and going through the bankruptcy process online, thereby removing the ‘embarrassment factor’, seems to have been a preferential one for debtors. The fact they can also pay the application costs in instalments, when petitioning for their own bankruptcy, has probably played a part too.
Paul Rouse is partner in the National Creditor Services division at Mazars, which has taken on the highest number of bankruptcy appointments this year, as the table opposite shows.
He said: “Access to bankruptcy by individuals seeking a solution has been facilitated by the online adjudicator process, which seems to be popular and working well, rather than having to petition for bankruptcy through the court, which was expensive and potentially daunting for the individual.”
Rouse also explained that a different pattern may emerge in the number of creditors’ petitions for bankruptcies.
“The increases in fees that the official receiver charges, for every bankruptcy since the end of July, might well deter more creditors seeking recovery through a bankruptcy petition.
“This, coupled with the decrease in creditor petitions, due to the inflated £5,000 threshold putting the process out of the reach of many creditors, will most likely see bankruptcy numbers remain flat at best.”
There were 870 creditor petition bankruptcies between July and September, which was 3.7 percent lower than the previous quarter and 22.6 percent year-on-year.
The Insolvency Service also said this recent drop is linked to a change in the minimum debt a creditor must be owed to make someone bankrupt, which increased from £750 to £5,000 in October 2015.
See Credit Strategy’s December issue for the full article.