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Record personal insolvencies revealed - 05/02/2010

A record 35,574 people in England and Wales were declared insolvent in the last quarter of 2009, according to statistics out today from the Insolvency Service.

The figure – a 24.9 per cent jump on the same period a year ago – was made up of 17,007 bankruptcies, 13,219 individual voluntary arrangements (IVAs) and 5,348 debt relief orders (DROs).

Mark Sands, director of personal insolvency at RSM Tenon cautioned: "There is no reason to believe that these levels will reduce as we go into 2010, as the aftermath of the recession will continue to impact on people in debt for a long time to come."

But in contrast to the jump in personal insolvencies, the number of businesses going bust dropped by 1.7 per cent to 4,566 on the previous quarter and fell by 1.1 per cent on the same period the year before.

Peter Sargent, president of R3, said: "The reason corporate insolvencies aren’t going up is that HMRC is granting a Time to Pay arrangement which is keeping companies from collapsing. And despite popular opinion, where they can be, banks are being very supportive."

Businesses are also receiving more help from so-called "ambulance-chasers" that provide restructuring advice to struggling firms before they teeter over the brink.

The difference between personal and corporate insolvencies is said to be driven by a growing number of small business owners using personal credit cards to buy supplies and other business essentials as an alternative lending measure during the downturn.

Martin Williams, managing director at Graydon, said: "Small businesses are also turning to credit cards as they provide insurance on any money spent, which is a source of relief when there is a risk of suppliers folding. But an owner can rack up huge debt if they start funding the business on credit cards which adds to the risk of bankruptcy."

In line with the statistics the Consumer Credit Counselling Service (CCCS) has also reported a steep 93 per cent jump in overall insolvency recommendations during the past year. In 2009, CCCS recommended insolvency to 39,663 of its clients, with 20,659 people coming to CCCS for help with their debt problems being recommended bankruptcy, 11,877 IVAs and 7,127 DRO.

Sargent warns that personal insolvency levels are only going to get worse over the next two years as creditors become more aggressive in claiming debts in the recovery, and suggests that there are even more people who are yet to face up to their financial problems.

Sargent said: "We know from previous recessions that early recovery can be a dangerous time – insolvencies continue to rise even after a recession ends. We are predicting 127,191 personal insolvencies in England and Wales for 2010."

R3 said it expects 28,000 corporate insolvencies this year in the UK, which although is only a slight increase from 2009, is still a 22.8 per cent jump on the figures for 2008 (22,792). It said it is also predicting 154,000 personal insolvencies for 2010, a 22.2 per cent increase on 2008 (128,046).