Personal insolvencies on the up
Personal insolvencies have edged up to their highest levels in a year, official figures have shown.
Some 26,030 people went insolvent in England and Wales in the third quarter, although this number is still 7% lower than the same period a year ago, according to Insolvency Service figures.
The rise was driven by a sharp increase in individual voluntary arrangements (IVAs), which are agreements with creditors to pay back all or part of the debts, usually over a period lasting around five years.
The two other types of formal personal insolvency - bankruptcies and debt relief orders (DROs) - continued to drift downwards.
The number of people being tipped into personal insolvency had reached a five-year low of just over 25,000 in the first quarter of 2013, but the figures have been edging up slightly since then and the latest total marks a 1% increase on the second quarter.
Some 76,763 people have become insolvent this year so far. Despite the recent uplift in the figures, if they remain broadly the same into winter it will still mean that the overall total for this year comes in lower than the 109,000 people who went insolvent in 2012. Last year's total was the lowest annual figure recorded since 2008.
Within the new figures, there were 13,394 IVAs recorded, marking a 6% increase on the same period last year and the highest number seen in more than three years.
Some experts have suggested that on the face of it, the rising proportion of people opting for IVAs and trying to pay some money back rather than simply declaring themselves bankrupt is a sign that confidence in the economy is improving.
But they have also pointed out that it could be a sign that some people who have been previously juggling their debts are now finding the squeeze on their income too much to bear, which is forcing them into doing a deal with their creditors.
The number of people being declared bankrupt continued to run at its lowest levels in more than a decade in the latest figures.
Some 6,004 bankruptcies were recorded in the third quarter, which is down by one fifth (21%) on a year ago and marks the lowest number since winter 2002.
Bankruptcies, which are often seen as a "last resort", have been in general decline since the introduction of DROs in 2009, which are often dubbed "bankruptcy light". DROs are aimed at people with debt of less than £15,000 but no realistic prospect of paying it off.
Some 6,632 DROs were recorded in the third quarter, which is 15% down on a year ago and the lowest figure seen in almost three years.
Experts said that the official figures do not reflect the full extent to which people are struggling to manage their debts, particularly in light of the recent round of hikes announced to energy bills.
Phillip Sykes, deputy vice-president of insolvency trade body R3, said the figures are an indication of a "mixed picture", with on the one hand personal insolvencies running at lower levels than last year and on the other, a "boom" in people turning to IVAs.
Mr Sykes said that IVAs are only suitable for people with reasonable levels of spare income or assets such as equity in the family home.
He said: "Ordinarily, most people will use a recession and recovery to pay down debts, and record low interest rates should be helping with that."
Referring to R3's own research into how people are coping financially, Mr Sykes said: "T he rising cost of living has been a major concern over the past year for those that struggle to payday, while optimism about personal finances remains low.
"Although the economy is returning to growth, some people may be left behind."
Mark Sands, personal insolvency partner at Baker Tilly said: " The increased proportion of people in debt choosing to commit to a five year payment plan using an IVA is telling, as it suggests people are increasingly confident about the prospects for the economy."
But he said that personal insolvency rates generally will continue to come under pressure from stagnant wages and the possibility of any slight future rise in interest rates which could add to borrowing costs and "tip many people over the edge".