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Insolvencies hit lowest level in a decade

The latest official insolvency statistics paint an interesting picture.

full insolvency stats

Last year was marked by the lowest number of personal bankruptcies in nine years and it is expected to continue to edge down.

Debt Relief Orders (DROs), introduced in 2009 and often dubbed as “bankruptcy light”, have now been overtaken by the number of Individual Voluntary Arrangements (IVAs).

This may mean that people feel more financially stable and prefer to commit to a five-year repayment plan than walking away from their debts.

It was also noted that the corporate insolvencies have also dropped, especially the number of administrations, which are at their lowest level since 2004.

The interim Chief Executive at the Insolvency Service, Graham Horne, stated that “figures show the lowest number of personal insolvencies for some years. It is also good to see that more debtors have been able to reach agreements with those to whom they owe money through the use of Individual Voluntary Arrangements (IVAs).

The industry noticed a small increase in the number of the compulsory liquidations, however, the overall number of corporate insolvencies has fallen in 2014 by 6.3%.

Among factors contributing to the overall low level of insolvencies are low interest rates and falling inflation. However, it could lead some people to over-stretch their finances when interest rates eventually start to increase, pushing up the cost of borrowing.

It is also expected that the first quarter of the year will notice a small seasonal rise in the personal and corporate insolvencies. Quite often people with debt issues put off making decision or taking actions until the New Year and companies with over-promising Christmas revenue expectations find themselves at the end of their financial limits.

“Recently, the Government announced plans to increase the minimum level of debt of which someone owed money can force a person into bankruptcy from £750 to £5,000, marking the first time the limits have been revised since 1986.
At the same time, it plans to raise the maximum amount of debt that people can hold if they want to take out a DRO from £15,000 to £20,000. It is estimated that this move will allow around 3,600 more people a year with problem debt to enter a DRO.”

Subject to parliamentary scrutiny the proposed changes are set to come into force in October.

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