We recently did a post on the UK bankruptcy epidemic, which considered the fact that 100,000 people are made bankrupt in the UK every year.
Now, the latest official statistics have shed further light on the state of UK residents' finances, revealing that the number of individual insolvencies has increased since last year. We consider these findings and decipher the jargon.
The Latest Statistics
The latest statistics from The Insolvency Service have revealed that whilst the number of bankruptcies, liquidations and Debt Relief Orders slightly reduced during the period of April-June 2014, the number of Individual Voluntary Arrangements dramatically increased.
Overall, the number of people who became insolvent in England and Wales increased compared with April to June 2013, rising to one in every 440 people.
This can largely be attributed to an increase of one-fifth in the number of individual voluntary arrangements.
"The Insolvency Service supports people and businesses in financial difficulty, while protecting the interests of creditors.
Today’s figures show that more people have become insolvent than last year. There are a number of ways to manage debts over time, and it is important that people who need help should seek early advice. The Government-backed Money Advice Service has information on available advice.
More than half the people entering formal insolvency are now using individual voluntary arrangements (IVAs) to deal with their debts compared with other forms of personal insolvencies. Over the last year, there was a 20 percent increase in IVA's, while bankruptcies and debt relief orders decreased. Company liquidations decreased over the last three months, reflecting a similar trend over the last year."
The increase in the number of individual insolvencies means that you need to be more careful than ever about whom you enter into financial relationships with.
Image by LendingMemo
Understanding the Jargon
There are a number of terms associated with people in debt, which can help you understand the significance of the above statistics.
Bankruptcy is a form of insolvency. To qualify for bankruptcy a person's unsecured debts must be greater than their assets.
If someone is declared bankrupt, their creditors will write off their debts and they won't be able to pursue legal action to get their money back.
However, there are disadvantages – it costs approximately £700 to go bankrupt and it will likely result in the person losing assets such as their home and car.
Individual Voluntary Arrangement
An IVA is a legal procedure for people in financial difficulty. As it's a form of insolvency, the person must be unable to pay their debts to apply for an IVA.
People who want to apply for an IVA need an Insolvency Practitioner. The IP will assess their finances and send a proposal to creditors they owe money to, stating that all available income, after bills, will be used to pay off the debts. Payments take place over an agreed period, usually around six years, and once the period is over any outstanding debts are written off. People with an IVA are usually able to keep their assets.
Debt Relief Order
A debt relief order allows individuals to write off debts that they can't repay in a reasonable amount of time. To be able to apply they must:
- Owe less than £15,000
- Not be a homeowner
- Have no more than £300 in assets
- Have less than £50 a month left over after living costs
If a DRO is approved, the person's debts will be put on hold for 12 months, preventing creditors from pursuing the debtor. If the person's circumstances haven't changed after 12 months, the debts are written off.
County Court Judgement
A County Court Judgement is issued by a county court when someone has failed to pay money that they owe. If someone receives a CCJ the court has formally decided that they owe the money. Records of CCJs are kept for six years, unless the money is repaid within a month.
Peopletracer's financial search services allow you to check whether someone you are dealing with financially has a bankruptcy order, IVA, DRO or CCJ. To get started, simply create an account or log in, perform a people search and then access the 'Financial' tab.