With the latest individual insolvency figures showing a drop of 5.6% year on year, EuroDebt is warning this could be ‘the calm before the storm’.
Commenting, Vance Parsons, EuroDebt director said: “On the face of it, the financial stress we know people are grappling with is not reflected in these latest figures.
“We have seen a real rise in the number of people in middle-income brackets who have overstretched themselves and are now tackling huge debts, which are probably not truly reflected in the increase in Individual Voluntary Arrangements (IVAs) in the fourth quarter of 2011 (up 4.5% on the corresponding quarter of 2010).
“We believe the real picture will emerge at the end of Q1 2012 when the impact of Christmas spending, fuel bills and rising petrol costs will have made an impact. This is definitely the calm before the storm.
“For those indebted consumers with very limited disposable income, we feel a big contributor to the fall in bankruptcies, where the majority are petitioned by the debtor, is the simple fact that for many, declaring themselves bankrupt is just too expensive.
“We need to reduce the barriers for people to declare themselves bankrupt, where this is the most appropriate debt remedy, by creating a process that is swifter and more cost-effective, aligning England and Wales to the Scottish system where it costs in the region of £100 to petition for bankruptcy. In England and Wales, the figure is closer to £700. This simply adds to the stress and financial difficulties people are already facing.”
In Scotland, the barriers to enter bankruptcy have been reduced and effectively all that is needed is an authorised person to sign a "certificate of sequestration" saying that the debtor is insolvent. Debtor applications are simply sent to the Accountant in Bankruptcy with £100.
Vance Parsons continued: “It makes sense to remove bankruptcies from the Court process where there are no disputes between a debtor and their creditors. We would also welcome payment of the fee by instalments with lenders showing forbearance where they are aware that a consumer is serious about entering insolvency proceedings.
“This would be similar to Debt Relief Orders and while these are more cost effective than bankruptcy, strict conditions regarding who can apply restricts the number of clients who are eligible. For some the best route is bankruptcy but we urgently need the system to become more cost-effective and fair.”
