Belfast Telegraph

13% rise in personal insolvency as 'tide turns' for household finances

The number of people being tipped into insolvency jumped 13% last year amid fears that the "tide has turned" for household finances.

Figures from the Insolvency Service show 90,930 personal insolvencies were recorded across England and Wales, rising 13.1% from 2015.

It is the first time since 2010 that the number of people entering insolvency has increased year-on-year.

The number of companies going insolvent also increased last year, for the first time since 2011.

Mark Sands, a personal insolvency partner at RSM, said: "In 2015 we saw the lowest levels of personal insolvency in over a decade, but the latest figures for 2016 show that the tide has now turned.

"Despite record low interest rates and high employment levels during the year, many more people found that they could no longer keep on top of their debts."

Recent Bank of England figures have shown strong rises in consumer credit, prompting concerns from charities that people could be at risk of over-stretching their borrowing.

Low interest rates have been keeping repayments relatively affordable, but with an uncertain economy ahead there have been signs of households feeling a bigger squeeze from rising living costs.

The rise in personal insolvency was driven by an increase in individual voluntary arrangements (IVAs) - an agreement whereby money is shared between creditors.

Having fallen in 2015, IVA numbers jumped 23.2% in 2016, with 49,745 cases.

The official figures also include bankruptcies and debt relief orders (DROs) - a type of insolvency often known as "bankruptcy light", aimed at people with lower levels of debt they cannot pay off.

Bankruptcy numbers fell in 2016, with 14,989 bankruptcy orders recorded, down 5.4% on 2015.

There were 26,196 DROs in 2016, an 8.4% increase.

A recent rise in the amount of debt people taking out a DRO are allowed to have has enabled more to take out DROs instead of going bankrupt.

Despite the rise in personal insolvencies, the total was the second lowest in 11 years.

The Insolvency Service's figures also show 16,502 companies entered insolvency in 2016, a rise of 12.6%.

This was mainly down to a "one-off" liquidation of a large number of connected companies in the final quarter of last year following rule changes which made them unviable.

The number of companies entering insolvency in the final quarter of 2016 jumped by 53.8% compared with the previous quarter, with 5,564 cases.

But if the connected companies were excluded from the figures, the increase would have been 4.2%, the Insolvency Service said.

When these connected companies were removed from the annual figures, the underlying number of company insolvencies was "broadly unchanged", with a 0.3% increase on 2015.

Andrew Tate, president of insolvency and restructuring trade body R3, said the fall in the pound since the summer will have been a "shock" to some firms.

He said: "A lmost half our members have said Brexit has come up in discussion with struggling businesses since June.

"2017 will be an important test: many larger firms will have been protected from the pound's fall by currency hedges or long-term fixed-price contracts, but these will unwind or end this year.

"Businesses have been buoyed by resilient consumer spending since the EU referendum but much of this is on the back of increased borrowing - it's not clear how sustainable this will be."