30 July 2021
The number of individuals entering a personal insolvency procedure has reduced by approximately four per cent compared with the previous quarter, which itself also dipped from the quarter before that. This demonstrates continued creditor tolerance and a reluctance to act against individuals whilst restrictions remained in place.
The figures, released by the Insolvency Service today, reveal that there were 27,662 individuals entering either bankruptcy (2,385), a debt relief order or DRO (4,367) or an individual voluntary arrangement or IVA (20,910) in the second quarter (Q2) of 2021.
This is the fifth quarter to be wholly affected by the pandemic and associated national measures, and whilst IVA numbers again exceeded the pre-pandemic quarterly average for the fourth quarter in the last five, the number of bankruptcies and DROs remained significantly reduced compared to pre-pandemic rates.
Andy Nalliah, Personal Insolvency Partner at RSM said: 'It is pleasing to see the total number of Personal Insolvencies in the quarter dropping for the second quarter in succession, this time by 4 per cent. However, as DRO numbers remain relatively consistent, the decrease in personal insolvency numbers is largely due to reduced IVA numbers for the second successive quarter and a 9 per cent reduction in bankruptcy numbers quarter on quarter.
‘This is the least number of bankruptcies in one quarter for well over a decade, with the insolvency service reporting a 7 per cent drop on the same quarter last year, which itself was the previous lowest.
‘Although it is not disputed that personal insolvency numbers are reduced due to the pandemic, what is uncertain is the additional impact of Breathing Space, the two-month grace period to protect debtors from interest and enforcement action. Since the introduction of Breathing Space on 4 May 2021, the Insolvency Service has reported a total of 11,747 registrations in the quarter. Whether these registrations are precautionary, or a precursor to a formal insolvency procedure, remains to be seen.
‘Whilst IVA numbers have fluctuated since the start of the pandemic, the rolling 12-month rates remain marginally higher than pre-pandemic rates. Four of the five quarters wholly affected by the pandemic’s restrictive measures have seen IVA volumes exceed the pre-pandemic average. Given the uncertainties over the sustainability of employment as the furlough scheme commences its wind down, IVA numbers continue to suggest that despite the well-publicised issues facing our workforces, individuals have remained proactive in addressing their financial situations throughout the lockdown period as a means to pre-empt creditor pressure and possibly avoid bankruptcy.
‘It is worth recognising data from who Bank of England who reported that net mortgage borrowing hit a record high of £17.9 billion in June 2021. Whilst these figures were likely stimulated by the lower stamp duty rates, debtors ought to be cautious that whilst borrowing is currently cheap, these rates are likely temporary so caution must be given to sustainability and affordability of additional borrowing in the event interest rates rise in the coming years.’