Personal Insolvencies reach three year high

Q1 2022 marked the eighth quarter to be affected by the pandemic and associated national measures. It saw the number of individuals entering a personal insolvency procedure reach their highest total number in over three years, since Q4 2018.

The seasonally adjusted figures, released this week by the Insolvency Service, reveal that there were 32,305 individuals entering either bankruptcy (1,679) a debt relief order or DRO (6,629) or an individual voluntary arrangement or IVA (23,997) in Q1 2022.

IVA numbers continue to exceed the immediate pre-pandemic quarterly average and in fact rose a further 20% when compared to the previous quarter, whilst DROs continued their recent trajectory, increasing for a fifth successive quarter and 13% on the previous quarter.

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

Andy Nalliah, Personal Insolvency Partner at RSM UK said:

‘IVA registrations for the quarter were recorded at the seasonally adjusted figure of 23,997; the second highest on record and behind only Q2 2020. This would suggest that the first full quarter of lockdown, where many people faced financial uncertainty, the current cost-of-living crisis fuelled by UK inflation hitting a 30-year high is driving debtors to take an active approach as regards their financial positions.’

‘Whilst IVA figures were the second highest on record, the bankruptcy numbers of 1,679 were the second lowest on record and the lowest for 35 years since Q1 1987. Furthermore, and just as significantly, the 1,679 bankruptcies in the quarter represents a 36% drop on the same quarter last year and an 8% drop on Q4 2021.’

‘Of the 1,679 bankruptcies in the quarter, the Insolvency Service report that only 16% have arisen because of creditor petitions. This low percentage follows the post-pandemic trend and could well be because debtors are managing to agree terms with creditors and enter an IVA. However, debtors will be aware that if they renege on the terms of their IVA, bankruptcy may become unavoidable.’

‘As interest rates and consumer prices rise, I would expect to see pressure on debtors increase and the number of bankruptcies, and specifically the percentage of those arising from creditor petitions, begin to climb as creditors re-evaluate their approach to both issuing credit and debt recovery.’

‘DRO numbers continue to rise and were up 59% on the same quarter last year. The quarterly registrations totalling 6,629 represent the highest quarterly figure since the pandemic commenced and similar in quantum to the pre-pandemic rolling averages. This may however be partly explained by the eligibility thresholds being increased last summer; since which time registrations have risen quarter on quarter.’