Personal insolvencies hit record levels in UK

Accountancy firm KPMG says insolvency figures released today reveal a record number of personal insolvencies in the UK.

The figures reveal that 98,255 people went into bankruptcy or entered into an Individual Voluntary Arrangement in the 12 months to the end of September.

IVAs are the increasingly popular alternative to bankruptcy and the number of people entering those agreements has more than doubled in the last 12 months.

Steve Treharne, head of personal insolvency at KPMG, says: “These latest figures show that the rise in the number of people entering IVAs continues at an astonishing pace.

“Together with bankruptcies, the traditional option for the over indebted, we are now seeing new levels of personal insolvency that would never have been imagined a few years ago. We predict annual rates will exceed 100,000 for the first time by the end of 2006.”

Analysis by KPMG of data compiled on IVAs shows the average debt owed by someone entering an IVA is £49,660.

In addition, in the past quarter, more than 1,000 people have entered into an IVA with debts in excess of £100,000.

Treharne adds: “The increase in the number of people entering IVAs is causing concern.

“Several lending institutions have raised concerns at these record levels, and have commented on the limited extent to which the advice sector is regulated.

“The Government has made it clear that it has no plans at this stage to strengthen regulation. It is therefore essential that all involved have an open dialogue about the solutions which are to be offered to the increasing number of consumers struggling to manage their debts.”

In October, KPMG hosted a forum attended by 120 representatives of creditor banks, providers of advice and IVAs, and government officials.

Those present recognised that trust between all those involved in the IVA market needs to be maintained.

Treharne, who chaired the forum, says: “This was an important step in considering the issues being raised by the credit providers about the now widespread use of IVAs and whether there are some people to whom an alternative way of dealing with over indebtedness might be more appropriate.

“Another area of concern is the increasing number of IVAs which fail to achieve the agreed aims and we are calling for everybody involved to work together to improve the success rates for IVAs.”

“KPMG has worked with the Financial Services Authority on a project to encourage financial literacy amongst adults.

“Therefore we welcome their latest initiative, with partners Teachers’ TV, to produce four television programmes aimed at schoolchildren and teachers. The programmes are an excellent idea as they will help deliver an understanding of personal finance issues.

“Future generations must be given the opportunity to enter adult life with a good grasp of budgeting and an understanding of how debt can be managed in a responsible fashion.”

He adds: “With a further increase in interest rates predicted, the pressure on the over indebted will increase. Most people will, understandably, pay their mortgage first to protect the family home, but that will leave even less to meet their unsecured debts.

“I fear that more consumers will fail to meet their minimum monthly credit card and loan payments and will have to consider taking formal steps to deal with their overindebtedness.”