Bankruptcies plummet in the first quarter of 2013
The number of people declared bankrupt in England and Wales plummeted by 27% in the first quarter of 2013 compared to the same period last year, falling from 9,132 to 6,663, according to latest figures from the Insolvency Service.
On a seasonally-adjusted basis, the bankruptcy figures for the three months to the end of March are the lowest recorded in the UK since the first quarter of 2003. But a leading debt charity warned that the figures mask the fact that households are struggling to afford living costs such as council tax, energy bills and rent.
The bankruptcies figures helped take the total number of individual insolvencies – which includes individual voluntary arrangements (IVAs) and debt relief orders (DROs) as well as bankruptcies – to 25,006 in the first quarter, compared to 28,723 in the first quarter of 2012.
While individual insolvencies in the UK rose steeply in the seven years to 2010 (from around 35,000 in 2003 to a peak of just over 135,000 three years ago), they have been falling ever since as companies relax their repayment rules instead of aggressively pursuing debts.
Debt levels declining
But StepChange Debt Charity director of external affairs Delroy Corinaldi said: "While the decline in the numbers of personal insolvencies is welcome, the figures still remain well above the long-term average, as we continue to see the impact of the past credit boom working its way through the system.
"Large debt levels may be declining, however we know that the pattern of debt is beginning to change, as households are increasingly falling behind on priority living costs such as council tax, energy bills and rent."
According to Citizens Advice, you might want to think about bankruptcy if you have no money to pay your debts, or have so little that it will take you years to repay them.
Tips for sorting out your debts
- Sort out how much money you owe
- Work out if you've got any money to pay your debts off and, if so, how much
- Work out which are the most urgent debts for you to pay off. Priority debts (which have more serious repercussions if they are not paid) include: mortgage or rent arrears; gas and electricity bills; council tax arrears; court fines; arrears in maintenance payments (ie, support to an ex-partner or children); income tax/VAT arrears; and TV licence arrears.
- Look at your options for dealing with the less urgent debts and work out how to pay them off
- Contact your creditors and make arrangements to pay back what you owe
- Get help but don’t pay a fee for debt advice – try a charity such as Citizens Advice or Stepchange Debt Charity.
Invented by a Frenchman in 1954 and ironically introduced in the UK on 1 April 1973, VAT is an indirect tax levied on the value added in the production of goods and services, from primary production to final consumption and is paid by the buyer. Its levying is complex, with a number of exemptions and exclusions. For example, in the UK, VAT is payable on chocolate-covered biscuits, but not on chocolate-covered cakes and the non-VAT status of McVitie’s Jaffa Cakes was challenged in a UK court case to determine whether Jaffa Cake was a cake or a biscuit. The judge ruled that the Jaffa Cake is a cake, McVitie’s won the case and VAT is not paid on Jaffa Cakes in the UK.
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.
A person (or business) unable to pay the debts it owes creditors can either volunteer or be forced into bankruptcy – a legal proceeding where an insolvent person can be relieved of their financial obligations – but loses control over their bank accounts. Bankruptcy is not a soft option. Although it may wipe the financial slate clean, it is extremely harmful to a person’s credit rating (it will stay on your credit record for six years) and will adversely affect your future dealings with financial institutions. Bankruptcy costs £600 paid upfront.
“Arrears” tend to be associated with debt. If you fall behind and miss payments on any outstanding debt, the amount you failed to pay is an arrear – the amount accrued from the date on which the first missed payment was due.