Back at the end of 2009 we noticed a significant swing away from bankruptcies and towards IVAs. It is interesting to look at what has been happening since then and particularly whether that trend has been sustained. The short answer is that it has and the numbers of individuals choosing bankruptcy has plummeted in the last four years.
England & Wales
In England and Wales there were 74,670 bankruptcies in 2009 and in 2012, the last full year for which statistics are available, there were just 31,787 bankruptcies a drop of a remarkable 57% no less. Indeed in the first three quarters of 2013, there were just 18,911 bankruptcies recorded with the projected figure for 2013 as a whole estimated at about 25,000, a drop of 21% on 2012.
How have the figures for IVAs in England and Wales changed in the meantime? In 2009 there were 47,641 IVAs accepted and in 2012 the figure was 46,694 a drop of about 2%. In the first three quarters of 2013 there were 36,846 IVAs accepted with the projected figure for 2013 as a whole estimated at about 49,000, an increase of 5% on 2012.
A contributory factor to this trend was of course the introduction of Debt Relief Orders or DROs in 2009. The figures for DROs in England and Wales were 2009: 11,831; 2010: 25,179; 2011: 29,009 and 2012: 31,179. The first three quarters of 2013 had 20,983 DROs recorded with the projected figure for 2013 as a whole estimated at 28,000, a decrease of about 10% on 2012. Debt Relief Orders are limited to insolvent persons with unsecured debts of less than £15,000, no assets and low disposable incomes (less than £50 per month).
Scotland & Northern Ireland
Are these trends replicated in Scotland and Northern Ireland? In 2009 there were 5,641 Sequestrations (similar to bankruptcies), 8,774 LILAs (similar to DROs) and 9,126 Protected Trust Deeds (similar to IVAs) in Scotland. In 2012 there were 5,744 Sequestrations (up 2%), 3,886 LILAs (down 56%) and 8,772 Protected Trust Deeds (down 4%) in Scotland. In 2013 the figures in Scotland for the first three months are 3,439 Sequestrations (full year projection estimated at 4,585, a drop of 20% on 2012), 2,070 LILAs (full year projection estimated at 2,760, a drop of 29% on 2012) and 5,387 Protected Trust Deeds (full year projection 7,183, a drop of 18% on 2012).
In 2009 there were in Northern Ireland 1,236 Bankruptcies, no DROs (these were not yet introduced there) and 722 IVAs. In 2012 there were 1,452 bankruptcies (an increase of 17%), 506 DROs and 1,231 IVAs (an increase of 70%). In 2013 the figures in Northern Ireland for the first three months are 954 Bankruptcies (full year projection estimated at 1,272, a drop of 12% on 2012), 425 DROs (full year projection estimated at 567, an increase of 12% on 2012) and 1,068 IVAs (full year projection 1,424, an increase of 16% on 2012).
What conclusions can we draw from these personal insolvency figures?
The figures for DROs in England & Wales appear to have reached a plateau and growth is flat or negative. In Scotland the trend is definitely and sharply downward for LILAs. In Northern Ireland there is steady growth in the numbers of DROs and we can expect this to continue for several years, given that this solution was not introduced until 2011.
Bankruptcies show a definite and sharp downward trend in all three regions. The 2013 projections when compared with the actual statistics in 2012 show reductions in bankruptcies of 25% in England and Wales, 20% in Scotland (Sequestrations) and 12% in Northern Ireland.
IVAs appear to be the most buoyant of the various insolvency solutions with England and Wales showing a projected increase of 5% in 2013 as compared with 2012. However in Scotland the projected numbers for Protected Trust Deeds in 2013 are down 18% compared to 2012. In Northern Ireland IVAs are projected to increase by 16% compared to 2012.
These trends suggest that debtors are showing a marked preference for the IVA vis-à-vis Bankruptcy as a solution to personal insolvency. Creditors have softened their attitudes towards IVAs and have pulled back somewhat from the hardened approach they adopted towards IVAs five or six years ago. Creditors do acknowledge that their returns from IVAs in terms of the amount of debt repaid are substantially better than what they can expect to recover from debtors who are forced into Bankruptcy or voluntarily choose that route. In particular creditors seem to have begun to accept that debtors in IVAs should have a reasonable standard of living over the term of their IVAs and that they should not seek to trim back the debtor’s expenditure projections to the point where any unexpected increase in expenditure or reduction in income causes the IVA to fail. It appears also that that the expenditure allowances in Bankruptcy have hardened somewhat resulting in higher income payments orders or income payments agreements.
Falling property prices and the loss of equity has also been a significant factor influencing the trend since in many cases it would not benefit creditors if the debtor were forced into selling his or her home in Bankruptcy. In an IVA on the other hand there is at least some prospect that property prices will begin to increase again over the next five years with the expectation that some equity will be present and realizable and available to be contributed into the IVA for the benefit of creditors. It also seems that the stigma of Bankruptcy is still a significant factor for many debtors. A further factor, not always acknowledged by creditors, is the genuine desire which many debtors have to honorably repay as much of their debts as they can and they see an IVA as the best route to do this while offering them some prospect of retaining their home and their dignity.