Personal insolvencies set to rocket in 2009

5 January 2009

More than £1.1bn was written off in 2008 as a result of individual voluntary arrangements, with the average person entering into an IVA in 2008 owing £47,800.

KPMG expects more than 150,000 people to either enter into an IVA, be declared bankrupt or enter into a Debt Relief Order which will be introduced in April.

Mark Sands, director of personal insolvency at KPMG, says: “Most IVAs deal with personal loans, credit card balances and other forms of unsecured debts.

"Most of this money was borrowed to meet ‘current’ expenditure including lifestyle items such as holidays, or to meet monthly shortfalls in the household budget, rather than to acquire assets or to fund a business
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“By the time people realise the extent of their problems, their total debts will have been swelled by interest, charges and even further borrowing to fund the minimum repayments.

"In 2008, the average IVA debtor owed £47,800, however, this hides a wide spread of debt levels ranging from around £20,000 to more than £100,000 – KPMG estimates that more than 2,500 people entered into IVAs with debts exceeding £100,000 this year.

“This high average level of debt clearly indicates that too many people have borrowings that they have no realistic hope of repaying."

In April 2009 the government plans to introduce Debt Relief Orders which will allow consumers with debts of less than £15,000, and minimal assets or surplus income, to write off their debts without entering into a full blown bankruptcy.

Sands says he expects that the new approach will increase the number of people using personal insolvency as the way to deal with their debts.

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