Despite the tough economic times, less people hit the financial buffers in 2011 than at any point since the current financial crisis began, according to statistics by RSM Tenon, the UK’s 7th largest accountancy and professional services firm.
Roughly 120,000 people were declared bankrupt, took out a Debt Relief Order (DRO) or an Individual Voluntary Arrangement (IVA) this calendar year – the lowest figure since 2008, when the failure of Lehman Brothers sparked off a credit crunch, recession and our current period of austerity.
Mark Sands, head of personal insolvency at RSM Tenon, said: “It sounds surprising that the year where the Euro crisis hit would be the year we see insolvencies drop. However, people are currently benefiting from two factors.
“Firstly interest rates have been held at half a per cent ever since March 2009 – a staggering and unprecedented situation. Many who would otherwise have been forced into bankruptcy are being kept afloat by the money they are saving on mortgage repayments.
“Secondly, people find themselves in the calm between two storms – we have passed through the initial waves caused by the credit crunch in the private sector and the comprehensive spending review in the public sector, while the first gales of the crisis in the Eurozone and the real depth of the redundancies in the public sector have yet to be felt by the man and woman in the street.”
Roughly 30,000 people obtained a DRO in 2011 – up almost 20 per cent from the year previously, reflecting the continued attractiveness of the relatively new mechanism. Surprisingly, the number of IVAs fell to 50,000, possibly suggesting a falling level of confidence in future employment, as IVAs require a commitment of five years of repayment before the process is complete.
Women continued to slowly close the insolvency gap, with 56,500 insolvencies in total, compared to 59,500 for men. Meanwhile the age group most prone to insolvency continued to be those between ages 36 and 45, who comprised 30% of people becoming bankrupt or taking out DROs or IVAs.
Mark Sands said: “Next year we expect the number of insolvencies to hold steady, at roughly 110,000. However, when interest rates begin to climb back up – as they eventually will – we can expect a spike in the number of people hitting the rocks.”
Top tip: Mortgage payers should set aside enough to cope with an increase in their mortgage when base rates rise to 3% and use that to pay down expensive unsecured debt.
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