The Personal Bankruptcy and Insolvency Problem
Financial Difficulties, Personal Debts and the Insolvency Service
Feb 23, 2009
A decade of economic stability and rising house prices was built on the back of credit. The bubble has now burst, lenders aren't lending and consumers are struggling with financial difficulties and personal debt issues. Many consumers are pursuing debt solutions, such as personal bankruptcy or Individual Voluntary Arrangements, to escape their plight and avoid creditor harassment.
The Scale of Financial Difficulties and Personal Debt Problems
According to research published by AXA, 3.7 million individuals are struggling to maintain payments on credit card debt. AXA also stated that 1.02 million people have borrowed more than they can afford to repay and are struggling to make mortgage repayments. In all, 11.6 million adults are dealing with financial difficulties and high levels of personal debt.
The Citizens Advice Bureau (CAB) dealt with 1.9 million clients with 5.54 million issues. Of these, 1.7 million (31.3% of enquiries) were in relation to financial difficulties and personal debts. Figures provided in relation mortgage and secured loan enquiries in Q2 of 2008 showed a 58% increase. There was also a 10% increase in personal debts in relation to fuel bills.
The Growing Burden on the Insolvency Service
The Insolvency Service said that there was a staggering 27,087 individual insolvencies in Q3 of 2008 in England and Wales. This represents an increase of 8.8% in personal bankruptcy figures on the previous quarter and an increase of 4.6% on the same period 12 months earlier. Leading accountancy firm, KPMG, predicts 110,000 personal insolvencies by the end of 2008 and 150,000 personal insolvencies during 2009.
Alternative Debt Solutions
Private debt management companies are one of the few areas of the economy that are doing well from the recession. Debt solutions, such as Individual Voluntary Arrangements, personal bankruptcy and debt management plans, are proving extremely popular with debtors. Debt solutions helps consumers to either manage or write-off debt, as well as helping to prevent creditor harassment.
Of the 27,087 insolvencies in Q3 2008, 9,746 were Individual Voluntary Arrangements, representing an increase of 3.3% comparative to the previous quarter. An Individual Voluntary Arrangement represents the principle alternative to personal bankruptcy. A home owner that is struggling with personal debts may be better served pursuing this debt solution than declaring personal bankruptcy.
With some experts projecting that unemployment will reach 3.1 million or 10.1% of the population, more consumers are certain to struggle with financial difficulties and rising personal debts. Those struggling to pay personal loans and credit card debts are advised to seek debt counselling so that a suitable action plan or debt solution can be identified.
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