Fewer bankruptcies since the beginning of the financial crisis


OLYMPUS DIGITAL CAMERAAccording to recent figures released by RSM Tenon, the number of individuals declaring themselves bankrupt have reduced since the financial crisis.

RSM Tenon, a firm of accountants and business consultants, has suggested around 25,000 borrowers resorted to insolvency to resolve their debt problems in the first three months of 2013. Bankruptcies are down by 16% on 2012 and are now at their lowest level since early 2008.

Financial experts believe the report is encouraging, as it revealed full bankruptcies fell by 25% to 6,850 cases. Whilst Individual Voluntary Arrangements (IVA), a weaker form of bankruptcy, also recorded a fall, by 11%. IVA’s require those in debt to repay creditors within an agreed period and this type of agreement requires a minimum of 75% of creditors have to agree to the plan.

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Along with these unexpected falls, RSM Tenon also revealed a “surprise result”, with Debt Relief Orders (DRO) fell by 8%, to 7,266.

DRO’s are considered a cut price alternative to bankruptcy. However, they are only available if an individual’s debts are less than £15,000 and the person has a monthly disposable income of less than £50.

Insolvency Service figures

The report from RSM Tenon was published a day ahead of official figures from the Insolvency Service, which confirmed a falling number of insolvencies. The figures from the Insolvency Service showed that during the first quarter of this year, financially strapped individuals in England and Wales recorded a total of 25,006 insolvencies, down by almost 13% on last year and an almost identical figure to that given by RSM Tenon.

The amount of insolvencies included 6,663 bankruptcies, down 27% on the first quarter of last year and DROs have also recorded a fall, by 8.6% to 7,219. The figures from the Insolvency Service also showed just over 11,100 IVAs during the past three months, down 4.9% on the first quarter of last year.

Bankruptcy numbers have fallen since the introduction of DROs almost four years ago and the numbers of DROs have been consistently higher than the rate of bankruptcy. Meanwhile, IVAs have also been more popular than bankruptcy.

Mark Sands, Head of Personal Insolvency at RSM Tenon, said: “The economy narrowly avoided a triple dip recession and the good news is that in the same quarter that the economy grew by 0.3% personal insolvencies have fallen to their lowest level since early 2008.”

Sands continued: “Record low interest rates have helped homeowners, a low level of new credit has avoided some of the over borrowing of the past and despite many people feeling the pain of the downturn and the austerity measures, unemployment has not reached record levels and so more people than in previous recessions have been able to muddle through.”

“The picture isn’t as rosy as the figures suggest, for many who have remained in employment even if they have permanent jobs. Rising costs, frozen salaries and wage cuts can still have an impact on family finances especially if they were in debt before the credit crunch.”

“This shows that people are less confident about their long-term employment prospects. As over indebted consumers still cannot see any certainty in their monthly household budgets, I expect to see peaks and troughs throughout 2013.”

Sands concluded: “Also, if people with serious debt problems are mis-sold debt management plans, a less regulated alternative, IVAs will continue to fall. Nevertheless I forecast IVAs to remain around the 40,000 level for 2013.”

Experts believe the recent figures published by RSM Tenon are encouraging and potentially point to better financial management with people prioritising loan and debt repayments over other discretionary spending.

Experts welcome this news, ahead of government plans to introduce financial education into secondary schools.