Just three months into 2008 and more than 25 000 people have already fallen victim to insolvency – and experts claim it’s now primarily the debtors themselves rather than the creditors who are filing for bankruptcy.
Today alone, around 300 people will declare themselves bankrupt or insolvent and 74 homes will be repossessed. And, if insolvency rates continue at the same level there could be almost 104,000 casualties this year, according to uSwitch.com.
The cost of living has shot up by 9% against salary increases of just 3.4% this year, and with five million people spending more than they earn every month - higher insolvencies are inevitable.
Now new figures published today by The Insolvency Service reveal that just three months into 2008, 25,264 people have already fallen victim to the insolvency epidemic.
For these people, insolvency means they have already reached financial stalemate. For others, the current economic climate in the UK is quickly pushing them towards this fate. Consumer debt has now reached a staggering £1.4 trillion, a figure that is increasing by £1 million every five minutes.
Consumers are also facing prices hikes from every angle with annual energy bills (up 13% or £1,114), food (up 11% or £324 a year) and mortgages (up 9% or £1,020 a year) and most recently petrol prices up by 25% to 109.8p per litre.
"It's worrying that so many people are resorting to individual insolvencies, be it an IVA or bankruptcy, to resolve their personal debt problems,” said Ann Robinson, Director of Consumer Policy at uSwitch.com. “These measure should always be the last resort for anyone with financial problems as they have a very serious impact on people's credit histories and their ability to borrow in the future. In the case of bankruptcy, it could also impact on employment prospects.”
She added that although many people currently feel that their finances are completely out of their control, ignoring the problem and hoping it goes away is not the answer.
“Banks have a duty to help people in financial hardship and free debt advice is readily available from organisations such as the Consumer Credit Counselling Service, National Debtline and Citizen's Advice,” said Robinson. “I would strongly urge people to start taking action before they reach financial breaking point."
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The Insolvency Service figures also show that bankruptcy orders have seen a pronounced shift towards debtor’s petition bankruptcies and away from creditor’s petitions in recent years. By the fourth quarter of 2007, 83% were made on the petition of the debtor. The statistics show that on an annual basis, this figure has risen consistently from 53% in 1998 to 84% in 2007.
“The stigma attached to going bankrupt no longer exists. Changes to the law in 2004 have made it a lot less personal,” said John Baird, Managing Director of DCM Money Solutions. “Debtor petitions give the consumer time to plan and have more control over what is going to happen when going bankrupt.”
The credit crunch is also playing its part in the shift away from creditors to debtor’s petitions as banks want to hold onto their cash and are willing to consider other forms of debt management.
Today’s statistics also demonstrate that while IVAs witnessed a slight increase of 4.3%, the ‘IVA factories’ are still not doing their job properly. Consumers who default on their payments under the plan should be entered into bankruptcy by the IVA provider, which would have resulted in creditor applications also seeing an increase.
“Going bankrupt is becoming so common these days, soon it will be just like getting divorced, everyone will know someone who has gone bankrupt,” predicted Baird.