As more people are signing up every day to Money Dashboard looking for money management software and trying to become more money savvy, we are glad to see that figures show the general public is getting better at managing debt.
Insolvency rates in Britain are falling and are currently at their lowest since 2008. The number of people in England and Wales who have taken out voluntary insolvency or been declared insolvent has fallen to 110,000 in 2012, an overall reduction of 8.7% on the previous year. A quarter of those insolvencies were arranged in the final months of the year.
Almost half of the insolvencies came about as individual voluntary insolvency arrangements, a formal agreement which is available to those who might otherwise become bankrupt, to make payments to creditors over a set period of not more than 5 years.
Bankruptcies and IVAs Fall
The number of people who have become bankrupt also fell, in this instance by 24%, to 32,000 compared to 2011. However, the number of Debt Relief Orders, a lower cost alternative to bankruptcy for people owing less than £15,000 and in receipt of a low income rose in comparison to 2011 by 7%. DROs were introduced in 2009 as an alternative to bankruptcy and, in the time since their introduction, have had a significant effect on the numbers of people filing for bankruptcy, which have fallen every year since then.
The decrease in the numbers of people taking out IVAs and DROs shows that people are becoming better at managing debt and that when they are faced with insurmountable financial difficulties, they are taking advantage of the alternatives to bankruptcy which are currently available. Another reason, besides better information could be that people simply can't afford to become bankrupt. If you're struggling for money then finding the £700 in court fees can be very difficult while the alternatives, such as IVAs are free. Besides this, many creditors are keen for people who owe them money to take out this alternative as it often means that they get more of the money that they are owed back.
While DROs are seen as a more ‘customer friendly' alternative to bankruptcy there has been a 36% increase in the number that are curently administered by StepChange for people unable to meet their financial obligations. Debt advice charities such as StepChange welcome the fact that people are taking up DROs and IVAs but are concerned about how they are going to give the right advice to the increasing volumes of people on low incomes who are looking for help with debt management.
In Scotland ministers have announced that they are going to change the way Debt Arrangement Schemes (Das) work to offer help at an earlier stage. They will now freeze interest and charges at an earlier stage while continuing to offer protection to those trying to pay off their debts. Enterprise Minister Fergus Ewing said that Das would now freeze interest and charges from the time the application was submitted to creditors and would also change the stipulations surrounding payment holidays. These changes are hoped to come into play before the summer of 2013.
As well as personal insolvency falling, company liquidations went down in the same period too, notwithstanding high profile high street retailers going to the wall. 4% fewer companies closed their doors for the last time in 2012 than in 2011, according to the Insolvency Service. However, while those working for an employer seemed to be coping with debt better than before, the self employed who became bankrupt, filed for IVAs or DROs rose. 22% of individuals in the third quarter of 2012 were self employed. It is thought that this number reflects the credit burden they were taking on in order to stay afloat only to find that it was unsustainable given the amount of work they were able to secure for themselves.
Amy Fry is a former financial adviser from WhatIVA? who tends to write about various topics including IVA, personal finances, saving money and debt management.