Debt relief orders trigger slight rise in personal insolvency numbers

The number of individuals entering a personal insolvency procedure has risen in Q4 2023 for the first time since the same quarter in 2022. Whilst bankruptcy and individual voluntary arrangement (IVA) numbers remained relatively static when compared to the previous quarter, debt relief orders (DROs) rose for the fifth quarter running, fuelling the increase in personal insolvency numbers.

The seasonally adjusted figures, released today by the Insolvency Service, reveal that there were 24,910 individuals entering either bankruptcy (2,023), DRO (9,064) or IVA (13,823) in Q4 2023. 

IVA numbers were marginally up by 0.4% on the previous quarter and dropped 36% when compared to the same quarter in 2022. DRO numbers continue to rise, increasing 7% in the period and by 46% when compared to the same quarter in 2022. Significantly, DRO registrations in the period also exceed 9,000 registrations for the first time and their highest quarterly level since 2009 when DROs were first introduced.

Bankruptcy numbers fell by 0.3% in the quarter; albeit this still represented a 25% increase when compared to the same quarter in 2022. 

Andy Nalliah, personal insolvency partner at RSM UK said: ‘Despite the small quarter-on-quarter increase in IVA registrations in Q4, the number represents a 36% drop from the same quarter in 2022 and is further proof that the quarterly volumes we have witnessed in the post-Covid era may have stabilised and are likely to remain around the current levels.

‘Given the continued political and economic uncertainty, particularly regarding disposable income and interest rates, lower levels of IVA registrations are not surprising as an IVA typically requires a five-year contribution commitment from debtors who are increasingly uncertain of their ability to stay the course.

‘Bankruptcies have remained above 2,000 quarterly registrations for two consecutive quarters for the first time since Q2 2022. If ever it were needed, this reinforces the notion that creditors are now foregoing most forbearance measures and pursuing bad debts more aggressively. This is corroborated by the Insolvency Service who report that of the bankruptcies in the quarter, 24% have arisen because of creditor petitions which is much more in line with pre-pandemic and an increase on the 17% of Q4 2022 levels.

‘When compared against pre-pandemic numbers, and perhaps more pertinently against DRO numbers prior to the eligibility thresholds being increased in the summer of 2021, it is likely that the increase in DRO registrations are those at the higher end of the criteria. In addition, they are likely to consist of those who would otherwise have become bankrupt; perhaps explaining, at least in part, the lower levels of bankruptcy numbers when compared to pre-pandemic levels. A further reason for the rise in DROs, particularly in the last two quarters of 2023, per the Insolvency Service, is the opening of the new DRO hubs in 2023.’