Rising cost of living forces rise in personal insolvencies

By April 29, 2014Finance, News

The rising cost of living and post-Christmas debt problems are to blame for a rise in personal insolvencies in the first quarter of 2014, according to the insolvency trade body R3.

Today’s official figures show that 24,931 people entered formal insolvency proceedings in the first three months of the year – up by 2.6% on the previous quarter, though a 0.3% drop on the same period a year ago. In particular, the number of Individual Voluntary Arrangements (IVAs) showed a marked rise – up by 14.3% compared to a year ago.

Richard Wolff, the North West chair of R3 and Head of Corporate Recovery and Insolvency at JMW Solicitors, said: “The first quarter of the New Year usually sees personal insolvencies climb slightly. Typically, people struggling with debts will put off dealing with their problems until after Christmas.

“As we’d expect, the increase is mostly due to rising numbers of IVAs which are associated with low value debt problems and people struggling with the cost of living. One thing we’ve noticed recently is IVA proposals with ever lower ‘surplus income’ payments – people just can’t afford to offer to repay more.

“Although we may not see a rise in insolvencies in the short-term, there is still plenty of pressure on personal finances. Wage growth is finally keeping pace with inflation but this won’t have an immediate impact. A rise in interest rates would add further pressure to borrowers’ personal finances.”

Mr Wolff indicated that the official statistics did not tell the full story as many thousands of people were in debt management plans which did not show up in the official statistics. He said he was concerned that an increase in the court fees associated with bankruptcy was one of the factors forcing people into debt management plans.

“While there are many reputable companies providing debt management plans, there are also unfortunately less reputable parts of the market where there appears to be little genuine concern for helping those overwhelmed by debt to get back on their feet. It’s very concerning that people in debt management plans may not necessarily have the benefit of qualified, objective advice.”

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