Insolvency figures expected to remain at record high

The number of people entering into insolvency in the first three months of this year is expected to remain around record levels, despite recent signs the economy may have turned a corner. The Insolvency Service will this morning publish figures showing how many struggling borrowers entered into formal arrangements including debt relief orders (DROs), individual voluntary arrangements (IVAs) and bankruptcy over the first three months of this year. Last year the figures hit a record high with 134,142 individuals entering into insolvency, and commentators said they expected them to run at a similar level in 2010. Louise Brittain, a partner in Deloitte 's Contentious Insolvency team, said she expected the figures to show there were around 35,000 insolvencies in the first quarter, and that the number was yet to peak. She also predicted a rise in the number of wealthy individuals filing for bankruptcy. "Although the economy may have technically emerged from recession, the impact on consumers is still filtering through and will continue to do so over the coming months," she said. "Whilst the corporate sector may be turning a corner, the same cannot be said for individuals. Ongoing financial pressures will be compounded not only by the fallout from the festive season, but also by concerns around disposable income and the impact of any measures taken by the next government to reduce national debt. Individuals will feel the pinch and continue to suffer." She added: "We will see an increasing number of high net-worth individuals filing for bankruptcy, particularly as personal guarantees on corporate debt are called in. Personal insolvency figures have yet to peak, and unfortunately I can only see them continuing to rise." Last April saw the introduction of DROs, which allow consumers with debts of less than £15,000 and minimal assets to write off their borrowing without entering into a full-blown bankruptcy. Over the remainder of the year a total of 11,831 individuals took out DROs, far more than had been predicted. Chris Nutting, director of personal insolvencies at KPMG , said he expected the number of DROs to continue to rise this year. "I think you will find that all three types of arrangement – bankruptcy, IVAs and DROs – will go up substantially, but that DROs will see the biggest percentage rise," he said. He added that he thought DROs were attracting borrowers who would have previously taken a different route to insolvency, rather than people who would not have appeared in the figures at all. "Instead of a small debtor going through the whole rigmarole and expense of a bankruptcy or IVA they can enter a DRO." He said he expected insolvency figures to "go through the roof" in 2010, even if the economy improves. "There is a time lag of anything up to two or three years, particularly if you consider company owners," he said. "The company goes bust in the recession, but the owner will mortgage themselves to the hilt and rob Peter to pay Paul for a while – it is only two to three years after the recession that they will be declared insolvent."