Personal insolvencies: on the decline, or a temporary respite?

The number of individuals entering a personal insolvency procedure has fallen for the fifth consecutive quarter.

The figures, released by the Insolvency Service today, reveal that there were 27,849 individuals entering either bankruptcy (4,261), a debt relief order (6,875) or an individual voluntary arrangement or IVA (16,714) in the first quarter (Q1) of 2020. 

Furthermore, the statistics show that one in 393 adults entered a personal insolvency procedure in the rolling 12 months to the end of Q1, being 31 March 2020, down from one in 381 adults in the rolling 12 months to the end of Q4 2019.

Alec Pillmoor, personal insolvency partner at leading audit, tax and consulting firm RSM said: 

'As expected, there has been a reduction in the total number of personal insolvencies, continuing the trend that we have seen since Q4 2018. Whilst the number of bankruptcies has remained broadly consistent over the last 18 months, the number of people entering into individual voluntary arrangements has reduced from Q4 2018 with a 27 per cent reduction over that period.’

‘Looking to the future, I anticipate that the number of personal insolvencies will fall again in Q2 2020. The reasons for this are twofold; firstly there is presently a general forbearance by lenders and other institutions due to the prevailing circumstances and, secondly, anyone that is currently furloughed, or concerned for their future employment would presently have great difficulty in putting forward a proposals for an IVA (individual voluntary arrangement) based on their future income. Additionally, it must be noted that the majority of bankruptcy petitions are not currently being heard by the court.’

‘We anticipate that there will be an increase in the number of personal insolvencies towards the latter part of Q3 this year and lasting into Q1 of 2021. This is partly because many of the individuals who are currently struggling financially will have only had the process delayed by the forbearance of lenders. Further, we would expect two spikes, firstly as the coronavirus lockdown is eased and some of the sole trader and partnerships find that their business models are no longer viable and they will unfortunately fail; and later when businesses have managed to retain their markets, some will inevitably over-trade to compensate for recent losses and have insufficient resources to pay for this level of trading.‘