subject: Record Increase in Personal Insolvencies [print this page] Record Increase in Personal Insolvencies
The latest figures have shown year on year growth in all types of insolvency solutions, but most worrying with bankruptcies/debt relief orders being the fastest areas of growth.
Whilst bankruptcy may sound like an easy option for consumers, in that quite often debts are considered satisfied within twelve months, it can limit employment prospects, ruling out roles in parts of the financial services sector; the forces and directorships. Additionally, there is a stigma of bankruptcy which can continue for 6 years and financial exclusion is a certainty with access to credit denied.
The introduction of Debt Relief Orders in April this year has fuelled the increase in the number of lower level bankruptcies, as it now allows consumers who have under 15,000 of unsecured debt to file for bankruptcy using a low cost but fast track process.
Perhaps of more concern in the longer term, however, is the fact that as bankruptcy grows in popularity it will provoke more lenders to become increasingly risk averse to lending to higher risk consumers and interest rates charges will continue to be disconnected from bank base rates as lenders build in the cost of non repayment loans into their pricing.
For over 40% of our callers, the main driver for people falling into debt is when they face a period of temporary unemployment, which very quickly builds up debt to unmanageable levels. This is further compounded by them returning to work in a much lower paid job, which can have a dramatic effect on household budgets.
We fully expect this trend to continue, especially if interest rates start to rise. According to Mintel, 32% of consumers are just managing despite interest rates being at historic lows, so a small rise in interest rates could push many people into severe financial difficulties.
At ClearStart, we believe that consumers struggling with debt should seek advice early to ensure they can access the least severe solution. While these solutions will mean that they need to make all or partial repayment of their debt, they will also help them to keep their options open.
We believe that advice should go beyond finding a debt solution and we also ensure that consumers are claiming all benefits they are entitled to, which can often make a real difference to household budgets and that they are paying no more than needed on the essentials such as energy and insurances.
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