On Friday the Daily Telegraph reported that more than 70 people an hour are being declared insolvent as, in record numbers, we fail to keep on top of our debts. Insolvencies have almost tripled in the past five years.
Yesterday, the Bank of England voted to keep interest rates at the all time low of 0.5%, thus postponing a sharp increase in the number of insolvencies that has been predicted to accompany a rise in interest rates. The full extent of the recession, experts warn, is yet to be realised.
Practice partner at insolvency practitioners, Tomlinsons, said:
“Many people who have been struggling with big debts and reduced income have managed to survive the past two years because of low interest rates. When interest rates rise, and rising inflation suggests that this could happen sooner rather than later, the number of people facing real financial difficulties will spike sharply.”
The action the minority or coalition government takes to bring the deficit under control will be critical.
The sad truth is that, whilst Britain is technically now out of recession, the harsh truth is that many of us are still living beyond our means. History shows us that personal insolvencies will continue their upwards trend for some time after the end of the recession.
If, as predicted, the new government raise taxes and reduce public sector spending, a lot of people will need to take drastic action to resolve their financial problems, such as applying for bankruptcy.
The most recently available individual insolvency figures show a total of 18,256 bankruptcies during January to March 2010, and 11,782 Individual Voluntary Arrangement (IVAs).
An IVA is an arrangement that is entered into with those owed money, while a bankruptcy involves a formal court order where assets are sold to pay off creditors.
Although an alternative to bankruptcy a debt relief order was introduced in April last year, the restrictions limit those eligible to apply – homeowners and anyone with debts above £15,000 are barred. Nevertheless, the final quarter of 2009/2010 showed an increase in debt relief orders from 5348 to 5,644
The expectation is that 150,000 people will be forced into personal insolvency by the end of the year.