Thousands seek breathing space from debts as insolvencies rise

More than 75,000 registrations for breathing space from debts have been recorded since May last year, as the number of people going financially insolvent across England and Wales has increased annually.

And with households facing a tough winter ahead and soaring energy bills, more may be forced to consider insolvency as an option, some experts said.

Figures released by the Insolvency Service show the number of people going financially insolvent across England and Wales between April and June was 7% higher than the same period in 2021.

Some 28,946 personal insolvencies were recorded in the second quarter of this year, which was also 10% lower than in the first quarter.

The formal personal insolvency total is made up of bankruptcies, debt relief orders (DROs), which are aimed at people with up to £30,000 of debt, and individual voluntary arrangements (IVAs), which are agreements with creditors.

Three-quarters (75% of cases) in the latest quarter were IVAs, while a fifth (20%) were DROs, with bankruptcies making up the minority of cases.

The 1,596 bankruptcies recorded in the second quarter of 2022 was the lowest since comparable records started in 1987, the report said.

The Insolvency Service also said there had been 75,385 registrations under the breathing space scheme, which was launched on May 4 2021.

Within this total, which goes up to June 30 this year, there were 74,177 standard breathing space registrations and 1,208 mental health breathing space registrations.

People registering for breathing space to deal with their debts may or may not end up going financially insolvent further down the line.

A standard breathing space gives people in problem debt legal protection from creditor action for up to 60 days, including pausing most enforcement action and contact from creditors, and freezing most interest and charges on debts.

A mental health crisis breathing space is available to people receiving mental health crisis treatment and lasts as long as that treatment, plus 30 days.

Christina Fitzgerald, president of insolvency and restructuring trade body R3, said: “Price increases across the board mean that the impacts are being felt differently by different types of consumers.

“For those on the lower end of the income scale, budgeting can only stretch so far and it is worrying that, for some, credit cards and other types of debt may feel like the only option to cover even the essentials.”

She said that, with the energy price cap due to rise again later this year and a very tough winter ahead for many individuals and families: “Many more may be forced to consider an insolvency option to help resolve their financial issues.”

The Insolvency Service said that, from the start of the coronavirus pandemic until mid-2021, numbers of bankruptcies and DROs were low when compared with pre-pandemic levels.

This is likely to have been driven in part by the range of government support put in place to financially support people during this time, the service said.

While DRO numbers increased following the change to eligibility criteria, bankruptcy numbers have continued to decline.

The level of debt at which people can apply for a DRO was increased from £20,000 to £30,000 in June 2021.

Numbers of IVA registrations are volatile between quarters, but there has been no clear increasing or decreasing trend over the past three years, the service said.

Meanwhile, there was an 81% jump in company insolvencies in England and Wales between April and June, compared with the same quarter a year earlier.

The total was also 13% higher than in the first quarter of 2022 and the highest recorded since the third quarter of 2009.

Between April 1 and June 30 2022, there were 5,629 registered company insolvencies.

Within the latest total, the number of creditors’ voluntary liquidations (CVLs) increased to the highest quarterly level since records started in 1960, with 4,908 cases recorded.

The report said: “The increase in CVLs between (quarter two) 2021 and (quarter two) 2022 coincided with the phasing out of measures put in place to support businesses during the coronavirus pandemic.”

John Cullen, business recovery partner at accountancy firm Menzies LLP, said: “Corporate insolvencies are now rising rapidly. This is an indication of the severe cashflow pressures that many businesses are facing, which are exacerbated by soaring energy and fuel costs.”