UK insolvencies decline in fourth quarter

The numbers of people declaring themselves insolvent reached 106,000 in 2007 although the numbers declined sharply in the fourth quarter.

Insolvencies fell by 16 per cent in the fourth quarter last year compared with the same period in 2006, according to figures from the Insolvency Service.

Bankruptcies in England and Wales totalled 15,659 in the last three months of 2007 - down 8 per cent on the same period in 2006.

There were 9,188 Individual Voluntary Arrangements (IVAs), another type of insolvency arrangement, in the same period - down by 27 per cent on the fourth quarter of 2006.

However experts warned that the recent fall might mask deeper problems because banks were now putting overindebted consumers on informal debt management plans rather than letting them become insolvent - leaving the banks to write off the outstanding debts.

In the past two years, banks have written off millions in bad debts due to overindebted consumers being unable to pay back credit card bills and unsecured loans.

This week banks and companies offering individual voluntary arrangements (IVAs) came to an agreement on a code of conduct.

Prior to this banks had been concerned about the rapid rise in IVAs in recent years which have hit the amount of bad debts which they have had to write off. They were concerned about the lack of regulation around the sale of IVA plans.

Banks, which as creditors must approve each IVA plan, have been blocking many IVAs in the past year until the new code of conduct had been approved.

The number of insolvencies in 2007 is a slight drop from 2006 where 107,288 people declared themselves bankrupt or took out an IVA.

However in 2007, there was a slight increase in the number of people opting for bankruptcy partly because it has become harder to get an IVA approved by banks in the past year.

The number of bankruptcy orders in 2007 were 2.4 per cent up on 2006 at 42,165 whereas the number of IVAs dropped by 5 per cent to 44,332.

The Insolvency Service said the number of bankruptcy orders involved trading debts (usually from the self employed) had fallen from 61 per cent in 1995 to 17 per cent in 2006.

The figures come ahead of new figures out next week which are expected to show the number of consumers struggling with mortgage payments has risen sharply leading to an increase in court orders and repossessions.

The Council of Mortgage Lenders has forecast that 30,000 properties will be taken into repossession in 2007 and it expects this to rise to 45,000 in 2008.

The figures published by the Insolvency Servcies yesterday also show that the number of company liquidations in the fourth quarter had also risen by 0.3 per cent on the third quarter totalling 3,135.