Figures published today by the Insolvency Service show another record high with a 0.7% increase to 135,089 for 2010.
Bev Budsworth, managing director of multi award-winning, The Debt Advisor, commented: “2010 was another record-breaking year with personal insolvencies topping 135,000 and a further 800,000 on debt management plans. The level of UK personal debt is over £1.4 trillion with the average adult owing nearly £30K, inclusive of mortgage, or over 125% of their average earnings. It’s clear then that this is still a huge issue. I believe that insolvencies could top 150,000 this year – five times the levels of a decade ago!
Debt time bomb
Bev’s comments come at a time when the UK economy contracted by 0.5% and the public sector is announcing job cuts on a daily basis. Bev continued: “The real fear of unemployment and daily price rises mean that people are keeping their pounds in their pockets which is not what the economy needs.”
According to a survey by R3, the insolvency trade body, 38% of people struggle to make their finances stretch beyond the 19th of each month, with major concerns being credit cards and loans. Bev explained: “If R3’s survey is representative, then this means there are around 18 million people who are just managing to hold on by their finger nails as interest rates remain low but even with low rates it’s really tough helping people who have no income.
“Unfortunately, it’s only going to get tougher as the government’s austerity measures are only just beginning to be felt in people’s wallets. I doubt that when the coalition government came to power last May, it envisaged that its austerity measures would result in such a startling increase in the cost of living. These spiralling costs, coupled with worldwide commodity shortage and conflicts in the Middle East pushing up oil prices, means that the future doesn’t feel that bright!
“We have at least begun pay back our debts, some £24 billion in the last 12 months but again this is marred when you consider that banks have written off nearly £10 billion of our debt over the same period.”
Recent reports from Citizens Advice have blamed the rise in depression and mental illness on money worries and debt and described it as the ‘trigger’ to depression. Mental health charity ‘Mind’ in Plymouth has also said that one in six of inbound calls now related to financial stress.
Bev explained: “Rising debt can lead to a rise in anxiety and this can have a profound impact on a person’s mental health. I have been campaigning for years to highlight the link between debt and ill health and The Debt Advisor offers a more holistic approach to its clients to not only treat the practical problems but also the mental ones.”
“My real worry is that the significant cuts to public funding will be a double- edged sword and not only make people more out of pocket and needy of specialist debt advice but also cut the very services they turn to for help.
“Funding cuts and inevitable job losses are going to hit the voluntary sector hard with debt charities and Citizen’s Advice likely to feel the brunt of this. We have already seen the government state that it has no intention of renewing the £30 million-a-year Financial Inclusion Fund that supports around 500 free debt advice specialists in England and Wales.
“These specialist free advice services have already had to stop taking on new clients at a time when demand is on the increase. According to the BBC, the Money Advice Trust, a charity that promotes independent help for people in debt, is forecasting that ‘200,000 extra requests for free debt advice are expected this year, taking the total to a record 1.6 million.’
“It’s clear that the government will need to turn to the private sector for support for these individuals. By using the properly-accredited private sector, the government can help reduce the estimated £100 million-a-year burden on the taxpayer and provide much-needed support to our fragile economy.”
“While figures may be high, they also indicate that more people are gaining access to specialist debt advice. This is great news as it shows that confidence is returning to the debt management sector whose image has suffered recently with a number of firms ordered by the Office of Fair Trading (OFT) to clean up their acts. Tenacious work over the last 18 months by organisations like the Debt Resolution Forum (DRF) and the Debt Management Standards Association (DEMSA) has helped to build trust in our industry and root out any ‘rogue traders’. As a result, non-lending solutions such as Individual Voluntary Arrangements and debt management plans are fit for purpose.”
The figures from the Insolvency Service consisted of 12,508 Individual Voluntary Arrangements (IVAs), a decrease of 5.4% on the corresponding quarter in 2009, 12,049 bankruptcies, representing a decrease of 29.2% on the corresponding quarter of 2009 and 6,172 Debt Relief Orders (DROs), up 15.4% on the corresponding quarter in 2009.