Personal insolvencies continue to rise year-on-year despite quarterly drop

The number of individuals entering a personal insolvency procedure remains high with a 7 per cent increase on the same quarter last year. Q2 2022 marked the eighth full quarter to be affected by the pandemic and the legacy issues associated with it.

The seasonally adjusted figures, released this week by the Insolvency Service, reveal that there were 28,946 individuals entering either bankruptcy (1,596) a debt relief order or DRO (5,772) or an individual voluntary arrangement or IVA (21,578) in Q2 2022.

IVA numbers were down 10 per cent on the previous quarter but remain above the rolling 6-quarterly average and rose by 5 per cent when compared to the same quarter in 2021. In a break from the recent norm, DRO numbers fell for the first quarter in six; albeit they too rose when compared to the same quarter last year.

Interestingly however, bankruptcy numbers continue to decline with a decrease in numbers for the sixth successive quarter and the lowest quarterly total in 35 years.

Andy Nalliah, Personal Insolvency Partner at RSM UK said:

‘Despite the 10 per cent reduction in IVA registrations in the period, numbers remain high when compared to recent quarters and Q2 registrations produced the fourth highest quarter on record. That the top four quarters for IVA registrations have arisen in the last two years (two in 2020 and the two quarters of 2022) suggests debtors are more aware than ever of their financial positions and equally proactive in ensuring they remain in control and avoid bankruptcy. Whether this remains the case as creditors begin to apply more pressure remains to be seen.

‘Whilst IVA figures were the fifth highest on record, the bankruptcy numbers of 1,596 were the lowest on record since records commenced in 1987. Furthermore, and just as significantly, the 1,596 bankruptcies in the quarter represents a 31 per cent drop on the same quarter last year and an 6 per cent drop on Q1 2022.

‘The Insolvency Service report that of the 1,596 bankruptcies in the quarter, only 16 per cent have arisen because of creditor petitions. This low percentage follows the post-pandemic trend and is consistent with the IVA registration levels.

‘However, as interest rates and consumer prices rise continue to rise, the pressure on debtors will only increase, negatively affecting the levels of discretionary funds in households and the reserves of debtors to make good on debts and compromise. This in turn could provide an obstacle for debtors in meeting the terms of contribution based IVAs. Consequently, I would expect to see the number of bankruptcies, particularly those arising from creditor petitions, begin to climb later this year as creditors re-evaluate their policies as regards credit and debt recovery.

‘Whilst DRO numbers remain high, the recent trend of quarter-on-quarter increases has stalled for the first quarter in six. Regardless, the quarterly number of 5,772 registrations still represents a 32 per cent increase on the same quarter last year. This can however be explained by the increase in the eligibility thresholds last summer which per the Insolvency Service, has enabled an additional 8,628 debtors to enter a DRO in the 12 month period to 30 June 2022.’