Fall in personal insolvencies 'masks debt crisis'

http://www.guardian.co.uk/money/2012/may/04/insolvencies-personal-debt-crisis

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The number of people in England and Wales entering insolvency fell in the first three months of 2012, but debt charities warned the figures represented "the tip of the iceberg" of the UK's debt problems.

A total of 28,723 individuals were made insolvent during the first quarter, down from 29,064 in the final quarter of 2011, and by 4.7% on the same period last year.

Within this figure only the number of people going bankrupt was down over the year – the number of borrowers entering all other forms of insolvency increased. Debt advisers said this may just mean some consumers were unable to afford to go bankrupt and were continuing to struggle to repay debts.

Between January and March 2012, 9,132 people entered into bankruptcy, a slight rise on the previous quarter but down 27.2% on the same period in 2011.

The number of people entering into individual voluntary arrangements, in which borrowers agree to repay a percentage of their loan over a set period, was down on the previous quarter but up by 8% year-on-year, at 11,694.

The number of debt relief orders taken out also increased, rising by 16.3% year-on-year to 7,897.

DROs were launched in 2009 to allow those struggling with debts of up to £15,000 to write them off, subject to conditions. The borrower must have a disposable income of no more than £50 a month, savings and assets worth less than £300, and cannot be a homeowner.

Joanna Elson, chief executive of the charity Money Advice Trust, said she expected the figures "to get worse before they get better".

"Talking to people who call National Debtline leads us to believe that many people simply can't afford the £700 it costs to go bankrupt (£525 for the deposit, plus £175 for the court fee), even though that would otherwise be their best option, leaving them in a financial black hole," she said.

"Insolvency figures only represent the tip of the iceberg when it comes to the scale of debt problems faced by households across the UK.

"Survey data suggests around 10 million individuals in the UK (around 20% of the adult population) find themselves in a constant struggle to manage their debts. Beyond that an estimated 2.5 million individuals in the UK are in arrears on at least one consumer credit product, household bill or payment."

Research by Experian shows that while insolvencies fell as a whole, in some areas of the country there was a sharp rise in the number of people seeking an escape from their debts.

In St Albans the number of insolvencies increased by 31% year-on-year, to reach five in every 10,000 households. In Birmingham it jumped by 21% to the same level, while in Skipton it rose by 20% to a rate of eight insolvencies for every 10,000 households.

The Consumer Credit Counselling Service said it believed 6m households were "financially vulnerable" and that high inflation, rising unemployment and the impact of benefit changes could push some into insolvency.

Rising levels of companies falling into difficulties may also take a toll on individuals. The number of companies falling into insolvency was up by 4.3% year-on-year at 4,303. Within this the number of compulsory liquidations grew by 11% to 1,238, while voluntary liquidations rose by 1.8% to 3,065.

David Birne, an insolvency partner at the chartered accountants HW Fisher, said the figures revealed "the true cost of the double-dip recession".

He said: "The post-Christmas retail lull often makes the first quarter of the year a bloody one, as companies that limped through December finally keel over.

"But there are still thousands of 'zombie' companies which are stumbling on, as banks are reluctant to push all but the basket cases into insolvency."