Bankruptcies hit lowest quarterly level in 15 years

BANKRUPTCIES have hit their lowest quarterly level for 15 years, according to official statistics published by the Insolvency Service.

The Insolvency Service has announced that there were 4,886 bankruptcy orders in England and Wales in the third quarter of this year, a level not seen since the first quarter of 1999.

Individual Voluntary Arrangements (IVAs) fell from the second quarter of 2014 to 13,143 – slightly down from 13,394 (1.9%) in the same quarter last year.

Debt Relief Orders (DROs) also dropped slightly from the second quarter of this year to 6,808 – a rise of 2.7% on the same quarter last year, but on a year-to-date basis the numbers are broadly consistent with last year.

“Bankruptcies have fallen to a 15 year low as consumers have taken advantage of record low interest rates to pay down problem debt, or chosen to apply for a Debt Relief Order in circumstances where they owe less than £15,000,” said Mark Sands, Personal Insolvency Partner at Baker Tilly.

“We’ve also seen an increase in popularity for IVAs so far this year suggesting an improved confidence among debtors that they can commit to a five year repayment plan, although the numbers for the latest quarter are slightly down on the record high we saw in quarter two.”

Despite the fall in insolvencies the recent rise in unsecured borrowing by consumers could be storing up problems for when interest rates rise, Moore Stephens has said.

“The days of the UK consumer de-risking their finances are definitely over,” said Steve Ramsbottom, partner at Moore Stephens.

“The current downward trend in insolvencies will come to an abrupt end when interest rates start to rise again.”

Recently published minutes reveal that two members of the Bank of England Monetary Policy Committee voted to raise rates in October’s meeting, leading the financial markets to price in a rate rise for mid-2015.

“Low interest rates combined with the improved economic outlook has led to increased consumer spending on credit cards and unsecured loans. Mortgage debt has been rising for some time but the increase in unsecured debt is new,” Ramsbottom added.

“When interest rates rise, a lot of people could be left shouldering debts they can no longer afford and we could see a fresh wave of personal insolvencies.”