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INSOLVENCIES FLAT BUT REAL LEVELS ‘HIDDEN’

Published on:May 4, 2012Author:The Debt Advisor

Figures published today by the Insolvency Service show that corporate insolvencies in the first quarter of this year were up 4.3% on the same period in 2011 to 4,303. Personal insolvencies dropped in the first quarter 2012 to 28,723 and were 4.7% less than the same period 12 months ago.

Bev Budsworth, managing director of multi award-winning The Debt Advisor, said: “Although figures for both corporate and personal insolvencies have remained relatively flat, there are still huge numbers of people and companies in debt and under an increasing amount of pressure to pay them back.

“Today’s figures only cover formal insolvency plans such as Individual Voluntary Arrangements (IVAs) and Debt Relief Orders (DROs). However, the figures do not tell the real story that far more people opted for an informal debt management plan – a figure not reported today.
“There are approximately 732,000 debt management plans in existence, and its estimated that 165,000 people sign-up to a plan each year. When you look at the numbers on formal plans, around 120,000, it’s clear to see that the real number of people in debt remains well hidden.

ECONOMIC ROLLERCOASTER

“The economy is like a rollercoaster at the moment; one minute it’s up with predictions of growth and a fall in unemployment, the next it’s down again with a double-dip recession and a slowdown in growth in both the construction and service sectors.
“Unfortunately, the government’s austerity measures are doing nothing but fanning the flames and are just adding to woes felt by the man on the street. Pressure on income due to the cuts, coupled with rising inflation and an economy now back in recession are all reducing people’s incomes and appetite to spend.
“This clearly then has a knock-on effect on business, where falling sales and increased pressure to recover debts from creditors and the HMRC can all force businesses to tighten their belts and cut their workforce.”

‘BAD DEBT’

Bev’s comments come at a time when the UK officially re-entered a recession and figures from business consultants Deloitte showed that, in England and Wales, 15% more retailers entered administration in the first quarter of this year than in 2011. The number of job losses that resulted from these administrations was almost 50% of the workforce employed by those retailers.
Bev continued: “The doom and gloom on the High Street continues with an alarming number of retail chains resorting to administration to try to save their businesses.
“We really are on a knife-edge when it comes to the economy. News that the CBI predicts a return to growth in this quarter is encouraging but recent mortgage rate rises will see more pressure being heaped onto people’s incomes which may lead to mortgage arrears, visits from the bailiffs and, even worse, face eviction or repossession.
“Debt collection is a major issue at the moment. The more rapid and assertive collection activity from the HMRC on businesses has been widely reported. However, figures from the Credit Service Association (CSA) have revealed that some £58 billion of unpaid consumer credit was outsourced to debt collection agencies in 2011.
“What’s most concerning is that, of the £207 billion that was lent to consumers last year, nearly a third of it is going ‘bad’. These bad debts are increasingly being farmed out to debt collection agencies, not just from private companies but also from government agencies, such as HMRC.”

TOUGH TIMES

Bev concluded: “Times are tough so we all need to pull together to help each other through for what could be a very challenging 12 months for both consumers and the businesses that employ them.
“I would always advise people in debt to always make provisions for them and to repay their debt as soon as they possibly can.
“If you are unable to afford your commitments, there are a number of formal and informal plans that enable you to work with your creditors and repay your debts at a level you can afford.”
The figures from the Insolvency Service consisted of 11,694 IVAs, an increase of 8.1% on the corresponding quarter in 2011, 9,132 bankruptcies, representing a decrease of 27.2% on the corresponding quarter of 2011 and 7,897 Debt Relief Orders (DROs), up 16.3% on the corresponding quarter in 2011.