IVAs fuel huge increase in insolvencies

The number of people becoming insolvent in England and Wales has jumped by 55% over the past year, according to official figures released in November. More than 27,000 people filed for insolvency in the third quarter of 2006. This was an increase of 5.7% on the previous quarter and up 55.4% on the same period a year ago. Behind the figures is a dramatic increase in the numbers of people opting for controversial Individual Voluntary Arrangements (IVAs).

The Insolvency Service said there were 12,228 IVAs in the second quarter of 2006, a rise of more than 117% on the same quarter last year. The number of personal bankruptcies is also rising, but at a slower pace than IVAs.

During the second quarter of 2006 there were 15,416 individual bankruptcies, an increase of 2.7% on the previous quarter but up 26.6% on the corresponding quarter of the previous year.

Banks and credit card companies are becoming increasingly edgy about the massive surge in IVA numbers, which is already eating into profits. According to a report by PricewaterhouseCoopers entitled "Living on Tick," someone enters an IVA every seven minutes of each working day. The typical debtor is younger and more likely to be female than at any point in the past, and that expenditure in excess of income is the root cause - 83% of those surveyed blamed excessive spending for their debts.

Steve Treharne, head of personal insolvency at accountants KPMG, said IVAs were growing at an astonishing pace: -Together with bankruptcies, the traditional option for the over-indebted, we are now seeing new levels of personal insolvency that would never have been imagined a few years ago.

"We predict annual rates will exceed 100,000 for the first time by the end of 2006."

Company failures drop

On a brighter note, the Insolvency Service said that the number of company failures is dropping, indicating an underlying robustness in the economy.

There were 3,235 company liquidations in England and Wales in the third quarter of 2006, a decrease of 0.4% on the previous quarter and a fall of 4.3% on the same period a year ago.

There were 1,335 compulsory liquidations, an increase of 9.7% on the previous quarter but a decrease of 12.1% on the corresponding quarter of the previous year.

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