The Insolvency Service has revealed that personal insolvencies in England and Wales in 2014 totalled 99,196, which represents a 1.8% fall from 2013. This is the lowest figure for nine years and the fourth successive year in which the figure has fallen.
It thus seems that the second quarter of 2014 may have been something of an anomaly. This quarter saw a rise of 5.1% in personal insolvency events when compared to the same period in 2013.
Bankruptcies accounted for just 20,318 of the insolvency events, representing a fall of 18.3% compared to the previous year. This is the lowest number of bankruptcies the UK has experienced since 1998.
The number of debt relief orders entered into fell by 3.1% to 26,688.
However, the number of Individual Voluntary Arrangements (IVAs) that were taken out in 2014 bucked the trend. The figure for this type of arrangement of 52,190 represents a 6.8% annual increase. IVAs thus accounted for the majority (53%) of insolvency events in 2014.
A DRO allows those with debts of up to £15,000 and assets of £300 or less and disposable income of £50 per month or less to have their debts and interest frozen for 12 months, and to have their debts written off if their financial position has not improved by the end of this period.
An IVA is where creditors representing at least 75% of an individual’s debt agree to an arrangement whereby the individual’s debts are restructured, on the basis that only a certain percentage of the debt needs to be repaid. It is administered by an insolvency practitioner.
In January 2015, the Government announced plans to increase the bankruptcy threshold to £5,000. At present, individuals can be the subject of a bankruptcy petition over debts as small as £750, with this threshold having remained unchanged since 1986.
At the same time, the requirements for entering into a DRO will be relaxed. The maximum debt that can be covered under a DRO will rise from £15,000 to £20,000; and the maximum value of assets that a DRO holder can have will rise from £300 to £1,000. If the individual owns a vehicle of up to £1,000 in value, then this does not need to be included in the asset limit. The requirement for DRO holders to have no more than £50 per month of income left after essential expenses have been accounted for is expected to remain unchanged.
The Government estimates that 3,600 more people will be able to enter a DRO each year as a result of the changes. It is estimated that the proposals will become law in October 2015.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.