Mixed bag in personal insolvencies as debtors take responsibility for their finances

The number of individuals entering a personal insolvency procedure has increased by approximately 12 per cent compared with the previous quarter.

The figures, released by the Insolvency Service today, reveal that there were 32,153 individuals entering either bankruptcy (2,415), a debt relief order (4,806) or an individual voluntary arrangement or IVA (24,932) in the second quarter (Q2) of 2020.

This is the first quarter that has been properly affected by the lock-down and despite the rise in overall numbers, the reduction in the number of bankruptcies is much as expected.

Alec Pillmoor, Personal Insolvency Partner at RSM said:

'The number of Personal Insolvencies fell during 2019 and this continued into Q1 2020. Despite testing times for debtors and creditors throughout the quarter, this trend ceased in Q2 2020.

‘The substantial reduction in bankruptcies and DROs in Q2 2020, whilst welcome, is in line with our expectations in the current circumstances. A perceived increase in creditor understanding coupled with a reluctance to act against individuals has led to a substantial decrease in certain procedures throughout the lock down period. However, now that workforces are returning, the courts are reopening and creditors will be looking to maximise their cashflows, I expect enforcement action to increase so that the reductions seen in Q2 is likely to be the lull before the storm.

'IVAs in the quarter are 44 per cent higher than in than Q1 2020, much the reverse of the outcome we anticipated. The Insolvency Services has noted that the increase in IVAs must be treated with caution due to various technical issues. However, whilst we may have considered creditors may be wary of agreeing to contributions-based arrangements given the uncertainties over the sustainability of employment, creditors are seemingly giving debtors the benefit of the doubt and allowing them greater autonomy to alleviate insolvency issues. This suggests that despite the well-publicised issues facing us all, individuals have been very proactive in tackling their financial situations throughout the lock down period.

‘As businesses get back to pre-pandemic working patterns, and their cashflows become stretched, I anticipate that there will be a squeeze on individuals’ finances and that the rate of Personal Insolvencies will increase, possibly not substantially in Q3 2020, but certainly towards the end of the year .’ 

 

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