Bankruptcy figures hit 22 year record low

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The number of individuals entering bankruptcy has hit a record 22-year low with only 1,938 bankruptcies occurring in the third quarter of 2021. At the same time, the number of individuals entering a debt relief order (DRO) has increased by 31% in the quarter to become the highest quarterly total by some distance since the start of the pandemic.

This is the sixth quarter to be wholly affected by the pandemic and associated national measures, and whilst individual voluntary arrangements (IVA) numbers decreased by 9%, they again exceeded the immediate pre-pandemic quarterly average for the fifth quarter in the last six.

The figures, released by the Insolvency Service today, reveal that there were 26,758 individuals entering either bankruptcy (1,938) a debt relief order or DRO (5,735) or an individual voluntary arrangement or IVA (19,085) in the third quarter (Q3) of 2021.

Andy Nalliah, Personal Insolvency Partner at RSM UK said: ‘This is the least number of bankruptcies in one quarter for over 20 years, since 1989, with the Insolvency Service reporting a 16% quarter on quarter decrease, and a 33% drop on the same quarter last year, which itself was the first full quarter to be wholly affected by the pandemic.’

‘Of the 1,938 bankruptcies in the quarter, the Insolvency Service report that only 11% have arisen because of creditor petitions. It should be noted that now that Governmental support has reduced, particularly as regards the cessation of the Furlough Scheme on 30 September, I expect creditors to reassess their options and the forbearance they have demonstrated over the last 18 months will begin to cease.’

‘Interestingly, albeit perhaps not surprisingly as the level of debt at which debtors can apply for a DRO increased from £20,000 to £30,000 on 29 June, Q3 saw a significant increase in DRO registrations in the quarter. However, despite there being a 31% increase in DROs in the quarter, and a 29% increase when compared to the same quarter in 2020, the quarterly number of 5,735 remains some way short of the rolling ten-quarter average pre-pandemic average of 6,842 quarterly registrations.’

‘Whilst IVA numbers have fluctuated since the start of the pandemic, the numbers for the Q3 were 9% down on those seen in Q2 (before Seasonal adjustment), the rolling 12-month rate is the highest since IVAs were introduced in 1986. Moreover, five of the six quarters wholly affected by the pandemic’s restrictive measures have seen IVA volumes exceed the immediate pre-pandemic average. Further, the continued high numbers of IVAs continue to suggest that despite the well-publicised issues facing our workforces and the question marks of the sustainability of employment, individuals have never been more proactive in addressing their financial health as a means to manage and pre-empt creditor pressure and possibly avoid bankruptcy.’

‘Although it cannot be disputed that personal insolvency numbers are reduced due to the pandemic, what is uncertain is the impact of Breathing Space on the personal insolvency numbers. Whilst we should acknowledge the two-month grace period to protect debtors from interest and enforcement action, the Insolvency Service have reported some 15,499 Breathing Space registrations in the quarter. Whether these registrations are precautionary, a precursor to a formal insolvency procedure, or even a way to circumvent an alternate procedure remains to be seen.’

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