IVA Use rises for a Second Year
New government data has shown that the number of personal insolvencies in England and Wales rose last year, making 2017 the second consecutive year to witness a rise in the number of people experiencing insolvency. This growth has been driven by the increased use of Individual Voluntary Arrangements (IVAs), which 59,220 people used in 2017.
Rise in the Number of IVAs and Trust Deeds
Significantly, this rise can be seen across the UK – both Northern Ireland and Scotland have also witnessed a rise in the number of people entering into formal debt repayment schemes. In Scotland, the number of personal insolvencies rose by 2.1% between the final quarter of 2016 and that of 2017. Here, a similar trend can be seen to the one evident in England and Wales – the number of personal bankruptcies is falling, whilst the use of Protected Trust Deeds is on the rise. According to the Accountant in Bankruptcy (AiB), Scotland’s insolvency service, the number of sequestrations in Scotland decreased by 4.2% in the final quarter of last year, but the number of Trust Deeds rose by 6.9%. Northern Ireland has also experienced a rise in IVA use, which was up by 6.2% in the final quarter of 2017 compared to the same period of 2016. IVAs in Northern Ireland are essentially the same as those offered in England and Wales, but administered by a separate body.
This across-the-board rise in formal alternatives to bankruptcy has aroused worries among some financial experts. Jane Tully, Director of External Affairs at the Money Advice Trust, has expressed concern that “IVA products are being sold that are unsuitable for people’s circumstances”.
Causes of the Rise
These rises in personal insolvency suggest that more and more people are struggling with debt. This is surprising given that creditors have been encouraged to allow more breathing room for people who fall into arrears to pay what they owe, whilst employment has been on the rise. It is possible that the increased use of IVAs and Trust Deeds is partly the result of more people turning to these options as an alternative to traditional bankruptcy and the restrictions it imposes. In Scotland, sequestrations have virtually been replaced by Trust Deeds, whilst the number of bankruptcies recorded in England and Wales remained stable between last year and 2016 – rising by a modest 0.3%. Perhaps greater awareness of the options available is part of the reason behind this shift.
However, the fact that a greater number of people are turning to these solutions at all is worrying. According to the Office for National Statistics (ONS), the employment rate for those aged between 16 and 64 currently stands at 75.3% – the highest it has been in recent years. Clearly, being in work is not necessarily the way out of financial difficulties.
According to Brian Johnson, Insolvency Partner at the accounting firm HW Fisher and Co., “The combination of shrinking real wages and the increase in interest rates means that the finances of many Britons are stretched as tight as a drum”. He went on to point out that, since the cost of living has been rising by 3% every year, “the average person’s pay packet isn’t keeping up”. This fall in real wages, despite the increase in the number of people in work, is perhaps best reflected in the recent rise in child poverty. Despite 600,000 fewer children living in “workless” households now than in 2010 (according to government figures), levels of child poverty in the UK’s poorest areas have increased by around 10% in the last two years.
In other words, simply being in work does not protect us from insolvency. The rise of part-time work and the so-called “gig economy” may also be a factor. Although more of us than ever are employed, the rise in the number of jobs without guaranteed hours has led to unpredictable finances for many workers, who may be forced to use credit to plug gaps in a fluctuating income.
Alternatives to Insolvency
IVAs and Trust Deeds are the best solution for many people struggling with debt, but it is important to consider all of your options before making a final decision. Being insolvent has far-reaching implications for your financial future, so it is vital to seek professional advice if you find yourself struggling with debts. One informal alternative is to consider a Debt Management Plan, which involves negotiating a revised payment plan with your creditors – paying a smaller amount over a longer period of time. Some creditors might agree to help you by freezing interest on your debts, but this is not guaranteed.
Another informal alternative is to take out a Debt Consolidation Loan. This is a loan which is used to pay off other unsecured debts, leaving you with only one debt to repay. The idea is to find a loan with a lower interest rate and longer repayment term than your current debts to save money, and leave you with only one debt to worry about.
Personal debt is on the rise, but, fortunately, there are plenty of solutions available for dealing with it – whatever your circumstances.
30 January 2018
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