A modest fall in insolvencies

Figures from the Insolvency Service showed that personal insolvencies in England and Wales staged a modest fall compared to the record breaking 2006.

Total individual insolvencies in England & Wales in 2007 were 0.6% less than the total recorded in 2006.

This is the first time insolvencies have fallen since 1996. However, the impact of the credit squeeze, the likelihood of a slowing economy and a new code on insolvencies that came into effect last Friday could all push up this figure this year.

The Insolvency Service shows an increasing amount of people are realising they are chronically indebted and are filing for bankruptcy of their own accord, rather than at the request of their creditors.

George Johns, an economist at Barclays Capital, said we are predicting a slight increase in unemployment as the economy slows, so we would expect the insolvency data to pick up over the course of this year.

There is also a danger that the impact of the credit crunch will exacerbate the magnitude of any future increases, as sub-prime borrowers struggle to refinance loans as they roll off more favourable deals added Mr Johns.

Just under 10,000 insolvencies were dealt with through a formal debt plan called an Individual Voluntary Arrangement (IVA) in the final quarter of 2007, a massive fall of almost a third on the number of IVAs issued during the same period in 2006.

The overall decrease of 5% in the number of IVAs taken out in 2007 is probably due to a dispute between banks and IVA providers. Banks argued that too many debtors unable to stick to the strict terms of an IVA, and started to refuse large numbers of applications as a result.

However, the new code which came into effect on 1 February, resolves this argument. The ‘Straightforward Consumer’ protocol sets down stringent rules for the sale of IVAs and should lead to a significant increase in the amount of these debt solutions approved in 2008.

Mark Sands of KPMG described 2007 as being a ‘pause for breath’ in the amount of people being declared insolvent, before figures start to climb again throughout 2008.

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