Record number of insolvencies in the UK

WEDNESDAY, AUGUST 16, 2006

A record 26,000 people either declared themselves bankrupt or took out an Individual Voluntary Arrangement or IVA during the second quarter of 2006. The number of people becoming insolvent in England and Wales rose by 66% over the same period in 2003 as consumers struggled with their mounting debt problems. Many analysts believe that a total of 100,000 people could face insolvency during 2006.

With the total amount of personal debt in the UK exceeding £ 1.1 trillion, more and more people are finding it difficult to cope with their debts. Recent rises in fuel costs have certainly not helped, and this weekís decision by the Bank of England to raise interests to 4.75% will no doubt increase the debt misery for many people.

At present two thirds of people becoming insolvent are opting for bankruptcy, the remainder taking out an IVA agreement with their creditors. In an IVA an individual attempts to negotiate a deal with multiple lenders, paying what they can afford each month, with up to 75% of their debt written off and their interest frozen. The IVA has been available as an option to people with severe debt problems since 1986, but its popularity has risen sharply in the last few years as awareness of the IVA has increased amongst the UK public. The IVA differs from bankruptcy because people have more control over their finances during negotiations with their creditors, and are more likely to keep their home. For more details of the IVA, Debtsolver have compiled an IVA Information Resource.

The majority of people are still opting for bankruptcy at this time though, rather than an IVA. Some are asking if changes to the bankruptcy legislation in 2004 have meant that many people are increasingly seeing bankruptcy as a soft option to solving their debt problems. Under the Enterprise Act 2004, the period of bankruptcy was cut from three years to one, though the UKís Insolvency Service has consistently denied that it has become an easy option to debt problems.