Personal insolvencies hit record high
The number of personal insolvencies in England and Wales shot up by 25% in the last three months of 2009, hitting a record high.
The latest figures show there were 35,574 individual insolvencies in the fourth quarter, including 17,007 bankruptcies and 13,219 individual voluntary arrangements (IVAs).
The number of bankruptcies has actually fallen on an annual basis, whereas the final quarter of 2009 saw a 26% rise in the number of IVAs.
Over 2009 as a whole, the Insolvency Service reports a total of 134,142 insolvencies – equal to one in every 320 adults. This is up 26% from 2008 and is higher than the previous high of 107,288 seen in 2006.
Overall, there were 74,670 bankruptcies (up 10.7%), 47,641 IVAs, (up 21.8%) and 11,831 debt relief orders in 2009.
Debt relief orders, introduced in April 2009, helped drive the rise in insolvencies. These allow people with debts of less than £15,000 to write off debts without having to go bankrupt.
Meanwhile, the number of companies going bust fell by 7% to 1,465 in the fourth quarter of 2009.
However, 6,355 companies were declared insolvent in 2009 as a whole, a record number and up 1% on 2008.
Elsewhere, the Ministry of Justice has launched an investigation into whether homeowners who have failed to repay debts should have accrued a minimum level of debt before a court can order the sale of their home.
Under the current system, property owners who have unsecured debts such as credit or store cards, which they have been unable to pay, can have a ‘charging order’ placed against their property to secure the debts.
It is then possible for the lender to make an order for sale, when a judge decides that the property must be sold immediately to settle the unsecured debt.
Justice minister Bridget Prentice says: “We know that only a small proportion of charging orders result in the property being sold, so it’s rare for a debtor to lose their home because of things such as unpaid credit cards.
“But it’s important that the government considers whether there is a risk that the numbers will increase due to the current economic situation, and whether this could result in more people losing their homes because of relatively low levels of debt which they are unable to pay.”
The consultation will last until April 30.
Generally speaking, insolvency is to businesses what bankruptcy is to individuals. A company is insolvent if the value of its assets is less than the amount of its liabilities, or it is unable to pay its liabilities (loan payments) as they fall due. It’s an offence for an insolvent company to keep trading, so the main options available to an insolvent company are: voluntary liquidation, compulsory liquidation, administration or a company voluntary arrangement.