In recent months I have written on the dramatic growth of personal insolvencies in the UK over the last decade and of the reasons behind this growth. That is to say it was primarily down to the explosion of availability of credit and other economic factors. I have suggested that it will only get worse before it gets any better. Then earlier this month the third quarter statistics were released by the government’s Insolvency Service. They showed that for both forms of personal insolvency, bankruptcy and individual voluntary arrangements, there has been a fall.
Overall personal insolvencies in England and Wales are down 5% year on year and 3% from the previous quarter. On the face of it sounds like good news and perhaps like I was a ‘sandwich board crazy’ prematurely predicting that the end was nigh. We even had various lobbyists for the lenders being wheeled out on breakfast television lauding the figures as being proof, as if proof were needed, that the down-turn is due to the highly sympathetic and responsive way lenders have been approaching helping out borrowers who find themselves in trouble.
Frankly this was quite hard to stomach for anyone who provides independent advice, be they charitable or fee earning. Amongst many of the people who work in the independent debt advice sector, rather than being more helpful, it is widely considered that banks and lending institutions have if anything hardened their attitudes and stances towards their customers who for whatever reason find themselves unfortunately unable to pay their debts. It is felt by many that the number of banks that were genuinely treating customers fairly, even when the customer owned up to experiencing financial difficulties, can be counted on a few fingers of one hand.
Whilst third quarter of 2007 saw IVAs drop 14.3% when compared to the same quarter last year, the number of bankruptcies did rise slightly. Do these statistics tell the whole truth? Yes technically there are less insolvents this year than last but perhaps there is more to it? What the goverment figures do not reflect is those that opt for (or indeed are coerced into) informal insolvency routes such as debt management plans. Many banks might prefer these as they don’t take an immediate write down in their accounts but if customers cannot pay their debts as they fall due then the bad debt does not become any better because the individual is informally insolvent rather than formally. What an informal option does result in is not a better return for the creditor nor any protection for the debtor. Bad debts rarely become good, it would seem that they are merely swept under the carpet by some.
It is worthwhile taking another look at some of the economic factors faced by the UK economy:
- Debt enquiries to CAB and other debt advice organisations up over 30% compared to last year
- House repossession actions are up from 63,000 in 2002 to a projected 140,000 this year.
- House prices stagnant at best or even falling in some areas
- Five rises in Bank of England base rates since September 2006 and oil prices at record highs with knock on impact on cost of living
Hardly an economic boom time – Even if we ignore the woes of the US subprime meltdown spreading around the globe, causing a run on one of our high street banks and signs of a a squeeze on availability on consumer credit, over 2.5 million people in the UK are said to be struggling with their debts. Thanks to breakfast news we have now been re-educated by lobbyists to that understand that the lenders are actually helping these debtors thus explaining the fall in personal insolvencies let us reconsider a few issues. Before I choke on my cornflakes I might just dust off that old sandwich board.
McCambridge Duffy are a firm of leading chartered accountants and one of the largest insolvency practices in the U.K. We specialise in helping self employed individuals. Should your business be experiencing any financial difficulties call free on 0800 043 3328 where one of our highly experienced staff will be available to help you.