The increases in the rates of personal insolvency have been somewhat over shadowed of late by the high profile corporate insolvencies that have been hitting the headlines – especially in the retail sector. But the signs of individuals struggling with their finances are becoming more marked according to recent statistics.
Figures published by the Insolvency Service show that personal insolvencies have been steadily increasing since 2015. Quarter 2 2018 showed a rise in personal insolvencies of 4 %.
The statistics are cause for concern for the wider economy but what is the actual experience of an individual in financial difficulties? These difficulties can cause a great deal of stress for the individual and their families and can often be coupled with mental health issues and relationship breakdowns.
The insolvency profession always encourages those in financial difficulties to seek advice as early as possible as this can increase the range of options available and provide a better outcome for all concerned, but even if the individual is at crisis point it is not too late to take advice.
There can be many misconceptions about how personal insolvency works, what options are available and what is the effect of these on the individual concerned so it is understandable that there can be some reticence to seek advice. We strive to offer a sympathetic and non- judgemental approach to those in difficulties so that they can feel confident in discussing all the issues and to work with individuals to find the right solution for them. Every situation is unique and expert advice is crucial.
At the moment the main formal options for individuals include Individual Voluntary Arrangements (IVAs), Debt Relief Orders (DROs) and Bankruptcy. Some individuals opt for Debt Management Plans (DMPs) but whilst DMPs can initially look attractive to debtors their real effects are limited. DMPs are often not dealt with by an Insolvency Practitioner and are not subject to the same regulation. They do not automatically bind all creditors and there is not usually the write off of debts unpaid that is available with other options. Whilst DMPs can be the right option in some circumstances, we caution their use and proper advice is key. There are no official statistics for those in DMPs and it is thought that there may be a significant number of individuals using them. The personal insolvency landscape may therefore be much broader than we know.
The Government is currently considering the implementation of a “breathing space” mechanism for individuals which would allow an individual some time to seek professional advice without the threat of creditor action. We understand that this may await the setting up of the new proposed Government Single Financial Guidance body.
The rise in personal insolvencies seems to be showing no sign of letting up and the recent interest rate rise, albeit small, may well exacerbate the problems that individuals are facing. Both of these new initiatives are therefore to be welcomed if they provide encouragement for those in financial difficulties to seek professional advice and it is hoped that they can improve accessibility and options for those individuals.