General Information Regarding Increase in Insolvencies

TUESDAY, NOVEMBER 14, 2006

Many of us are very aware that more and more people are going bankrupt and filing for insolvency this year compared to last year. So, why has this happened? Well. These numbers are the accumulation of a major increase in debts over the past few years that must now be repaid and due to this recent rapid increase in borrowing, many citizens do not have the money they need right now to repay the loans that they took out and must turn to insolvency either in the form of a bankruptcy or IVA.

These numbers have been increasing since 2004, but have skyrocketed over the past year and many expect that over 100,000 people will file for bankruptcy in the United Kingdom. A major reason for this drastic increase in number of insolvencies dates back to the 2002 Enterprise Act when bankruptcy laws were changed in the UK so that it was easier and quicker to file for bankruptcy. Then in 2004, the standard period of bankruptcy was decreased to 1 year from 3 years and more recently, Individual Voluntary Agreements or IVAs have become very popular and lead to this increase in the number of insolvencies.

So, the question arises, what exactly is an IVA? IVAs are a relatively new alternative to bankruptcy and allow those in debt and lenders to reach a ìlegally-binding agreement with their creditors to reschedule their debts and reduce their monthly payments.î Between July and September of this year the number of IVAs has grown drastically and is catching up to the number of bankruptcies as in this time period, 15,416 people went bankrupt, while 12,228 people entered into IVAs. In the same time frame last year, 12,000 people filed for bankruptcy, while only 6000 reached an IVA with their lenders. There has been a lot of controversy regarding them as they hurt banks and credit card companies, who are in turn trying to decrease their popularity by saying that they are false advertised by those who are offering them and that they arenít the ìcut clear safeî way out of debt as they are being presented.

Many companies, such as Debt FreeDirect and Accuma, who work in setting up IVAs between lenders and those in debt, have seen profits skyrocket because of the growing rise in the popularity of IVAs. A statement released by Charles Howson, chief executive of Accuma, said it all. He said that due to the rapidly increasing popularity of IVAs, 2006 has been a "transformational year as gross profits have risen from £600,000 to £4.5m.î

It will be very interesting to see what happens down the road as the issue of IVAs and the fight between banks and companies that offer them continues to intensify.