The truth about bankruptcy
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Fewer people are entering into formal individual insolvency solutions … and particularly into bankruptcies.
The number of people entering individual insolvency has fallen in the last quarter, according to recent research from The Insolvency Service.
In the months July to September 2014, the number of people entering into some form of insolvency plan in England and Wales was 24,837, in comparison to 27,029 during the previous three months. This is also a 5% decrease in individual insolvencies compared to the same quarter last year.
Though it’s sometimes used to mean the same thing as bankruptcy, insolvency actually refers to formal debt solutions in general. In England and Wales, this means individual voluntary arrangements (IVAs) and debt relief orders (DROs), as well as bankruptcies. Entering into any formal debt solution is a serious decision and shouldn’t be taken lightly, but the benefits could outweigh the consequences for some people.
The recent figures show that out of the 24,000-plus individual insolvencies recorded in the last quarter, just 4,886 people entered into bankruptcy. This is the lowest figure for the past ten years, and may mean that borrowers are increasingly exploring other insolvency options. It’s also encouraging as it could suggest that people are thinking about tackling their debt problems earlier, which may mean some have successfully avoided bankruptcy.
However, the number of DROs is up slightly at 6,808; an increase of 3% from this time last year. The number of people choosing the DRO route has been fairly high since they were launched in 2009, suggesting people are considering it as an alternative to bankruptcy. This debt solution is designed for people with lower incomes, fewer assets, and debts of less than £15,000.
You don’t have to go to court to get a DRO like you do to declare yourself bankrupt, when you will have to pay court fees. The court fee for going bankrupt is £180 but you could get this waived in certain situations. However, you would still have to pay the Official Receiver fee of £525.
Despite this, DROs still have a serious effect on your credit score. However, for some borrowers, leaving debts to grow and not tackling them at all could have an even worse impact on their credit score, so it’s about weighing up the pros and cons.
Meanwhile, the number of people entering into an IVA has seen a slight fall: at 13,143 it’s 2% down on the same quarter last year. IVAs are another type of formal debt solution, and could help people manage their unsecured debts. They generally last for five years and after that time, unsecured debts that you can’t afford to pay back could be written off. One benefit of IVAs is that a repayment plan is calculated where you only pay back what you can realistically afford. However, they can still have an effect on your credit score for six years after the start of the IVA; you could be required to remortgage your home to release some equity; and you could even go bankrupt if you don’t stick to the conditions of the IVA.
Looking for help
If you’re struggling with debt problems, you might not have to enter into insolvency. Asking for help sooner rather than later is one way which could help you to get on top of your debts. However, formal insolvency solutions could be the best way for you to get yourself out of your financial difficulties. Speaking to an expert such as the ones at the Debt Advisory Centre could help you decide what the next step is for you … whether it’s insolvency or a less serious solution.
by Emily BancroftBack to blog home