2005's total was 67,584. During the final quarter of 2006, 29,804 individuals entered into bankruptcy or an IVA (Individual Voluntary Arrangement). The figures, analysed by Grant Thornton's Recovery & Reorganisation practice, represent an increase of 7.1% on the previous quarter.
The figures also show IVAs fast catching up bankruptcies to become the insolvency procedure of choice for resolving serious debt issues with 12,741 IVAs for Q4 compared to bankruptcies numbering 17,063. For the year the total number of IVAs has more than doubled, from 20,293 in 2005 to 44,331 in 2006. This compares to bankruptcies rising by 33%.
Mike Gerrard, Grant Thornton's head of personal insolvency, said: "Rising personal insolvencies are, in the most part, fuelled by consumers who borrow to spend, struggle to repay what they've borrowed and then quickly find themselves caught out in a spiral of debt they can't escape from. The problem is at such a serious level that almost 300 people are becoming insolvent each day.
"The problem has been heightened by increases in the cost of living with rising utility bills, council tax and interest rates biting where it hurts. However, with the Bank of England reporting that lending to individuals in 2006 increased by over 10% to £11.6 billion, the problem is clearly a long way from being resolved."
Commenting on the rapid increase in IVAs, Grant Thornton's head of IVAs, Mark Allen, cites the advantages of becoming debt free within a set amount of time, typically five years, and the absence of a bankruptcy's more restrictive terms as reasons for their attractiveness. He also added that the return to creditors in IVAs offer a clear advantage in comparison to a bankruptcy.
"Over the past few days, some UK listed IVA providers have issued profit warnings through market trading statements. While these may reflect issues inherent to those businesses, they certainly don't reflect what is happening to in the market. IVAs are not about to dry up nor reduce in numbers for the foreseeable future as the UK personal debt problem is far from resolved."
Allen also pointed to recent figures from the Council for Mortgage Lenders that show a 65% rise in repossessions to 17,000 in 2006 as further evidence of the extent of an escalating debt problem.
"The vast majority of today's repossessions, which typically represent the last resort in a personal insolvency case, are borne of the insolvency proceedings of 2005. With the huge insolvency levels seen last year, repossessions in 2007 are heading in no other direction but up," he added.
"Most of the time, it needn't ever come down to losing one's home as IVAs regularly offer the best option by facilitating a repayment agreement between debtors and creditors while freezing the debt and safeguarding possession of the house. However, with insolvencies on the rise we expect repossessions will close in on 20,000 before the end of the year," says Allen.
James Falla, managing director of Thomas Charles, said: "The DTI insolvency stats show a significant increase year on year, but a slow down in quarterly growth. One reason for this is the ‘festive effect’ where many people spend beyond their means during the Christmas period, and put off taking action to address their debts until the New Year. Thus we would expect to see a significant peak in insolvencies in the first quarter of 2007 as people deal with festive debt.
"The faster growth in bankruptcies this quarter is likely to be linked to the tightening of IVA acceptance criteria by banks. While this stance is taken, those who are unable to pay their debts, yet have their IVAs refused, will be forced to take bankruptcy as their only option, hence the stir in the IVA industry this week."
The Insolvency Service today released figures showing there were 29,804 individual insolvencies in England and Wales in the final quarter of 2006, (a 44.1% increase on the previous year) taking the annual number of insolvencies for 2006 to 107,288 (compared to 67,584 in 2005).
Anne Kiem, director of external affairs at the ifs School of Finance, said: “We continue to see the number of people becoming bankrupt increasing, whether through taking an IVA or a bankruptcy order.
"Insolvencies have increased from around 28,000 in 1998 to over 107,000 in 2006 – a period when the economy can be considered to have been relatively buoyant.
"These increases are likely to continue, and worse, if there is even a slight downturn in the economy, even greater increases will occur.
"A general lack of financial capability among the British population goes a long way to explaining why we are in this predicament. By giving everyone the crucial life skill of being able to manage their own finances the numbers of insolvencies would doubtless decrease.
"If policymakers have a real desire to address this problem, bold action is needed in the form of proper financial education for all.”
The ifs School of Finance believed this can be achieved if the government were to 1) ensure all schools and colleges offer their students the choice of studying financial education as a stand-alone qualification 2) provide ring fenced funding to schools specifically for the purpose of financial education and 3) establish financial capability teaching as an integral part of all teacher training.
