IVA & Debt Consolidation Advice

The credit boom of the last decade has left many in deep debt and currently, millions are on the verge of bankruptcy.

YouGov, a research organization, has found that almost 1 in 5, or 20%, of the adult population has an unsecured debt of at least £10,000. This amounts to nearly 8 million people. Of these 8 million people, 800,000 of them, or about 10%, have a difficulty making payments every month, while many others have difficulty making payments most months or on a frequent basis.

Thirteen percent of those in debt said that their situation was so bad that they were very likely or certain to declare themselves legally bankrupt or take out an Individual Voluntary Arrangement (IVA) and 10% of those in debt have already contacted an insolvency practitioner.

The Department of Trade and Industry (DTI) reported in early August that 23,251 people in England and Wales had chosen to become insolvent in the first quarter of 2006, an astounding 73 per cent increase in the number of insolvencies compared to the first quarter of 2005. The vast majority of debtors decided to file for bankruptcy, but around 8000 people decided to take out an Individual Voluntary Arrangement, the most popular alternative to bankruptcy.

Earlier this month, Mervyn King, the governor of the Bank of England, said Britons, “spiralling levels of debt could create difficulties for the economy. The proportion of unsecured debtors reporting their debt as a serious problem has gone up, the number of calls to the National Debt Helpline has risen quite sharply, so I think the signs are that a potentially large social problem, with many households getting into difficulty with their debts, is materialising."

James Falla, the director of Thomas Charles and Co, the insolvency practitioner that commissioned the research, said that many of these debt problems were due to overspending. “The rise of the ‘credit junkie’ phenomenon and the ‘spend, spend, spend’ culture is a long term issue. It needs addressing at grass roots level and that means via the educational system.”

Frances Walker, a spokeswoman for the Consumer Credit Counselling Service (CCCS), said it was alarming that so many people were considering insolvency. "Sometimes bankruptcy is the best route to take but there are serious repercussions. We would recommend anyone with debt problems to take expert advice from a free debt service like us or Citizen’s Advice before they take such a serious step. We live in a society where credit is here to stay so we have to teach people how to use it properly," she said.

The rise in the number of insolvencies this year combined to last is what alarms economists most. Many economists are very concerned about the effect of the millions of bankruptcies on the overall economy. We will have to pay attention to see what happens over the next few years and if the number of bankruptcies continue to rise through the end of 2006 and into 2007.

related articles:
"It is getting Harder and Harder to get a Loan"
"How to Get out of Debt"