August 21, 2009 08:00 ET

National Insolvency Statistics Show Rise in Bankruptcies and IVAs as Debt Levels Continue to Grow

CHORLEY, UNITED KINGDOM--(Marketwire - Aug. 21, 2009) - The latest national statistics survey for insolvency, outlined a rise in the number of recorded bankruptcies and also identified that the number of people seeking an IVA is increasing. Chris Moat, CEO of debt advisory service ClearStart, comments on the significance and implications of these latest stats and growing trends in debt management. In addition, he also provides an insight into the differences, benefits and misconceptions that exist between IVAs and filing for bankruptcy and why the UK consumer is typically opting for one of these options to ease their debt problems.

"The latest statistics show a clear divergence in the way consumers are dealing with their debt. The figures show a record number of individual bankruptcies and Debt Relief Orders being declared over the second quarter of 2009, coupled with an increase in the take up of IVAs.

"The figures highlight the extent to which consumers and creditors have begun to accept Individual Voluntary Arrangements as a viable product and alternative to bankruptcy. If this trend continues it will help lenders regain confidence in increasing access to credit at competitive rates. However, Bankruptcies are still seen an easy option for consumers, particularly following the introduction of Debt Relief Orders in April this year which now allow consumers who have under Pounds Sterling 15,000 of unsecured debt to file for bankruptcy using a low cost but fast track process.

"Whilst bankruptcy may sound like an easy option for consumers, in that quite often debts are considered satisfied within 12 months, bankruptcy can limit employment prospects, ruling out roles in parts of the financial services sector; the forces; and directorships. Additionally, there is the stigma of bankruptcy which can continue for 6 years and financial exclusion is a certainty with access to credit denied

"Perhaps of more concern in the longer term, however, is the fact that as bankruptcy grows in popularity it will provoke lenders to become increasingly risk averse to lending to higher risk consumers and interest rates charged will continue to be disconnected from bank base rates as lenders build in the cost of non repayment of loans into their pricing. Both of these factors give rise to the prospect of consumers having to turn to increasingly expensive means of obtaining credit such as pay day loans or sub prime loans offered by specialists.

"Individual Voluntary Arrangements strike a balance between supporting consumers who are suffering financial hardship by offering some debt forgiveness in return for a commitment from consumers to keep up a regular repayment plan. Under an IVA mortgage and rental repayments are prioritised and so consumers can be confident that they will protect their home.

"The repayment amounts are set with reference to a common financial statement which ensures consumers have sufficient allowance for normal living costs. Should income or expenditure vary for unavoidable reasons during the term of the IVA, insolvency practitioners can make proposals to modify the IVA. This ensures financial hardship is avoided throughout the life of the IVA.

"The rise in IVAs suggests that consumers are beginning to address their debt problems at an earlier stage which is the best recommendation which can be given to anyone struggling with their finances.

"By doing so consumer options to solve debt problems are much wider, often providing access to less severe solutions such as refinancing; debt management plans or IVAs. Whilst these solutions will mean that consumers need to make at least partial repayment of their debt, they will also help them keep their options open.

"In order to avoid financial exclusion and for consumers to keep their job prospects as wide as possible it is important that free impartial advice is sought as soon as consumers feel they are in financial difficulty. By doing so their options to solve debt problems will be much wider with options such as refinancing; debt management plans or IVAs perhaps being a possibility. Whilst these solutions will mean that consumers need to make some at least partial repayment of their debt, they will also help them keep their options open.

"It is vital that consumers are given the correct advice and are aware of the products and services available. ClearStart provides a wide range of debt solutions including free to client debt management plans and individual voluntary arrangements. By gaining control of your finances early, this can often be the difference between keeping a roof over your head and losing your home. This is clearly a key consideration of customers and we have seen a 20% increase in the proportion of home owners seeking help from us over the last 2 years.

"To ensure that consumers receive prompt help when in financial difficulty ClearStart provides immediate debt advice during normal business hours, there is no need to book an appointment a single phone call will result in immediate assistance."

ClearStart aims to help solve debt problems rather than allowing them to perpetuate. Recommendations are based on the individual situation and all advice is free. The website, offers practical advice for people and provides an online application form or there is a ClearStart freephone telephone helpline available on 0800 988 9345.

Contact Information

  • ClearStart
    Louise Dolan / Cortney Thomson
    020 7269 7192 / 720