Number of Personal Insolvencies Declining

28 May 2007

According to accountancy firm, PricewaterhouseCoopers (PwC), the number of personal insolvencies is on the decline. PricewaterhouseCoopers reviews approximately half of all proposed IVAs for its clients that include banks, who are creditors of those contemplating IVAs.

According to the firm's own records, the number of new IVA filings has been declining over the past several months. An individual voluntary arrangement, or IVA, is an alternative to bankruptcy and wipes out part of the debts of an individual.

Pat Boyden who is one of PwC's insolvencies experts states that by all indications, IVA numbers have been falling gradually each month. The figures will more than likely be reflected in official statistics that will be filed later in the year.

In Mr. Boyden's opinion, the reason for the decrease in IVAs is related to a stabilisation of debt that follows a boom during the first five years of the 21stcentury.

In spite of the fact that personal loans rose again in 2006, the total balances outstand on credit cards decreased, and their use declined for the first time since their introduction to the UK in 1966.

Based on official statistics from the government's Insolvency Service, there was an increase of almost 60% in personal insolvencies in 2006, mostly because more people chose IVAs in order to obtain relief from some of their debts. Mr. Boyden feels that the high increase of 2006 is now tapering off as the number of new IVAs almost stopped during the last quarter of the year.

Another factor responsible for the fall in IVA numbers is that lenders are beginning to take a more hostile attitude toward IVA proposals that are presented to them on behalf of their customers. The agreements are voluntary, and a creditor is not obligated to accept the terms if he feels that person is capable of paying more of their debts than the debt relief company is suggesting. They are starting to become irritated with a minority of people who try to obtain relief through IVAs that they believe are capable of paying off more of their debts without such an arrangement.

According to government research, the typical IVA involves men in their 40s who have debts between £40,000 and £43,000. The IVA usually reduces that to about £24,000 with a five-year repayment plan. Of that amount, approximately one third of it goes to the IVA company, thus leaving the credit with only about £16,000.

With the new hard-nosed attitude that lenders have taken, some of the new IVA companies that have opened in the last few years have reported a downturn in business in recent months. In spite of that, Mr. Boyden warns that another increase in the number of people filing IVAs may be imminent in the future, especially if mortgage rates increase again.