18th July 2016The modern face of personal bankruptcy

However, in contemporary Britain it is no longer viewed as shameful to be in debt; in fact it’s become an economic necessity for many, especially those paying for a university education or making their way up the housing ladder.

With interest rates having remained low for so long, the number of people finding themselves struggling with debt and facing bankruptcy has remained relatively low compared with past decades.

The reasons behind insolvency are many and varied and include mounting credit card debt, job loss, divorce and separation. It’s now easier than ever before to go bankrupt and, although it should never be a decision taken lightly, it can be the right solution for people faced with insurmountable levels of personal debt.

Personal insolvency
Today, there are three types of personal insolvency. Bankruptcy, individual voluntary arrangements (IVAs) where money is shared out amongst creditors, and Debt Relief Orders (DROs) often dubbed ‘bankruptcy light’ as they are used by people with lower levels of debt who realistically have no prospect of ever paying it off. Last year, the limit for DROs was increased to £20,000 offering more people an alternative to full bankruptcy proceedings.

A changing pattern
In 2015, total individual insolvencies were at their lowest level since 2005, with the decrease being driven by a fall in IVAs which were at their lowest level since 2008. There was, however, a marked increase in DROs resulting from the change in eligibility criteria. Around 20,000 people were declared bankrupt in England and Wales in the first quarter of 2016, whilst just under 7,000 embarked on DROs in the same period, a rise of 3.4% on the previous quarter.

An analysis of the figures carried out by the Insolvency Service shows that young women are more at risk of personal insolvency than men. Various explanations have been put forward for this statistic, including the widespread availability of credit and store cards often with high interest rates, our national passion for shopping, the gender pay gap, and financial pressures such as the cost of child care.

What the future might hold
With the economy likely to face stronger headwinds in the wake of Brexit, there is the likelihood that real earnings increases could be pegged, putting more pressure on household incomes. Many commentators believe that reliance on debt to make ends meet is rising to levels last seen around the time of the last financial crash in 2008.

With household debt at its highest level for four years, more personal insolvencies could be on the cards.

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