People struggling with debt urged to seek help

People struggling under the weight of their debts are being urged to seek help now before its too late, with experts warning that the country faces a huge rise in the number of personal insolvencies.

Although the number of people declared insolvent in England and Wales fell by 2.6pc during the second quarter of the year, according to data released by the Insolvency Service yesterday there are serious fears about what lies head.

A total of 34,743 people were made insolvent during the three months from June down from 35,682 in the previous wuarter. But the latest figure is still a 5pc increase on the same period a year earlier.

The figures revealed that 14,982 people went bankrupt in the spring months, down 20.6pc year-on-year. This is also markedly down on the 18.256 recorded in the first three months of 2010. But the number of people taking out individual voluntary arrangements (IVAs) increased to 13,466 in the latest quartered – up 10pc on last year.

And insolvency practitioners are warning that the latest figures may prove to be only a temporary reprieve.

Frances Walker, of the Consumer Credit Counselling Service, was one of those who expected spending custs to have a negative impact on insolvencies. “I think we are going to see more people being declared insolvent, and it will especially affect women as there are a lot of women employed in the public sector,” she said. “The are not all high-paid civil servants sitting on a good pension – there are a lot of lower-paid people in the public sector as well.”

Ms Walker added that self-employed individuals may also feel the squeeze in the months to come.

Meanwhile, the statistics also showed a continued growth trend of people being granted debt relief orders (DROs).

DROs offer an alternative to bankruptcy for people with debts of less than £15,000, assets of less than £300 and less than £50 of surplus income a month.

In the three months to June, there were 6,295 DROs granted, up from 5,644 in the previous quarter.

Matt Howard, a partner at the regional division of accountants PKF, said: “Many people are hanging on by a threat with heavy debts and just one small change of circumstances could see them go to the wall. They have also been helped in the last quarter because it saw the start of the holiday season and so there are fewer solicitors or bailiffs to chase the debts. I’m sure personal insolvencies in one form or another will continue to rise, and the best advice I can give is for people running into trouble to seek help and advice early. There is often a way out. Too many people are burying their heads in the sand but it is only a matter of time.”

Grant Thornton partner Ian Carr said: “The outlook for the next few years is pretty grim as it is now clear that large numbers of public sector jobs will go as the government acts to reduce the deficit. The effect of that may not be felt immediately as there is usually a lag between rises in unemployment and the insolvency figures. But with work hard to come by in the private sector, too, it is inevitable that some of these people will fall into the personal insolvency trap adding to those who are already in trouble.”

He added: “With the drop in house prices and consumer credit harder to come by, many have lost the ability to manouvre. The official figures represent the top of the iceberg and there are many more people who are outside the system but are only just managing to make ends meet.”

Chris Williams, a partner at McTear Williams & Wood and a member of the regional council of insolvency trade body R3, used the same analogy.

“Unfortunately, the personal insolvency figures are just the tip of the debt iceberg,” he said. The true size of the UK’s debt problem remains hidden as the insolvency industry estimates there are an additional 500,000 people currently in informal debt management plans and close to a million people struggling with debts who have not yet sought help.”

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