The Debt Advisor Logo The Debt Advisor Logo
Request a callback
blog

INSOLVENCY CLIMBS THE SOCIAL LADDER

Published on:November 4, 2011Author:The Debt Advisor

Figures published today by the Insolvency Service show that personal insolvencies were down to 30,219 in the third quarter of 2011 a decrease of 11% on the same period a year ago.

The numbers of IVAs and debt relief orders have slightly increased since the last quarter but bankruptcies have decreased from 11,113 in the second quarter to 9,567 in the September quarter. This is likely to be due to individuals unable to afford the £750 to make themselves bankrupt.

Bev Budsworth, managing director of multi award-winning debt management company, The Debt Advisor, commented: “Levels of personal insolvencies are not as high as last year but we are still seeing over 330 people a day being declared insolvent or bankrupt. The real change that we are seeing is the demographics of the people that are finding themselves with levels of serious debt – we are seeing a strong increase in the ‘impoverished middle classes’ coming to us for help as the situation becomes more and more desperate!”

 

Debt stereotype

 

“The days are long gone when it was the lower social classes who ran up debts, nowadays all people from all walks of life are suffering.

“More and more ‘well to do’ people are breaking the debt stereotype by not being able to keep paying off their debts, which historically, wasn’t an issue.

“Ten years ago, these people were still spending but unemployment, record inflation, negative equity and a whole host of other weak economic factors has meant that their ability to service this high spending lifestyle has been severely diminished.”

A recent report entitled ‘Facing the Squeeze 2011’, commissioned by the Money Advice Trust, split debtors into three groups: those who were managing, those who were stretched and those who were overindebted. The report concluded that, due to drops in income and the broad perception of rising living costs, respondents felt that they were still spending a similar amount to a year before, despite making cut-backs.

Bev added: “This is a common scenario for us. More and more people who once were managing to service their debt are now really feeling the pinch and starting to slip into the debt trap. Like swans on a lake these relatively affluent people appear calm and serene on the surface, but underneath they are frantic with the stress caused by severe debt.”

 

Throwing caution to the wind

 

Bev’s comments come at a time of record inflation at 5.2% and a 17-year high in the level of unemployment at 8.2%. She continued: “The situation is even more dire when you consider youth unemployment. Over one in five 16 to 24-year-olds – nearly one million young people – are out of work and financially dependent upon their parents.

“This compounds the problem further with parents who are nearly reaching their financial tipping point and fearful for their own jobs, forced into debt because they are forced to support to their unemployed children.

“People are definitely now throwing caution to the wind – we are seeing people on middle incomes using credit cards simply to pay for day-to-day living expenses. In more extreme cases, clients are using their plastic to pay their mortgage! Further down the ‘ladder’, the use of payday loans, log book loans and even loan sharks are commonplace.”

 

Not spending

 

“Understandably people are watching the pennies and the economic uncertainty and record high inflation is forcing them not spending unless it’s absolutely necessary. Unfortunately, this is only going to make the slowdown worse. What we really need is more money flowing through the economy if we are to turn ourselves around.

We need to be spending but only within our means. We all need to set a budget as to what we can reasonably afford and stick to it. We should be sensible and cut back where we can but we don’t need to do without all of life’s little luxuries – it’s a question of balance.”

According to recent Credit Action figures, total UK personal debt stood at over £1,451bn, with the average adult owing nearly £30k, inclusive of mortgage, or 122% of their average earnings. The average UK household debt is nearly £56k inclusive of mortgage but according to The Office for Budget Responsibility (OBR), household debt will total £2,126bn by the end of 2015 with the average household owing nearly £82k.

 

Corporate woes

 

Corporate insolvencies in the third quarter of this year were up again rising 0.1% on the previous quarter to 5,465.

This quarter has seen a number of brand names looking to scale back to limit their exposure to poor trading conditions. BAE and LloydsTSB are just some of the names to announce thousands of UK job cuts.

With many analysts predicting that inflation has now peaked, there may be hope for some manufacturers and retailers but whatever happens, the outlook for the next quarter continues to be bleak for businesses with sluggish growth and a difficulty to access working capital.

Bev explained: “Since the recession, some of the high-streets biggest names have been forced to close stores or have fallen by the wayside completely. Unfortunately, I see this trend continuing as businesses struggle to come to terms with these austere times.

“However, there is good news, with some businesses doing a roaring trade and expanding all the time. If you have a good product, backed up by a sensible business plan, you are always likely to survive and thrive – this hasn’t changed.

“The outlook is, at best, uncertain and it still remains to be seen whether Government schemes like project ‘Merlin’ will help to fund growth and influence future liquidations.”