61% annual increase in people taking out debt relief orders in February

The number of people taking out a debt relief order (DRO) in England and Wales last month was 61% higher than a year earlier, according to Insolvency Service figures.

DROs are a formal type of personal insolvency aimed at people with lower amounts of unmanageable debt.

Some 2,242 DROs were recorded in February, which the service said was 61% higher than in February 2021 but 6% lower than in February 2020.

The eligibility criteria for DROs was broadened last year, with the total debt level at which people can apply for a DRO being increased from £20,000 to £30,000.

There were also, on average, 6,384 individual voluntary arrangements (IVAs) registered per month in the three-month period ending February 2022.

IVA numbers have remained fairly stable at around 6,000 to 7,000 per month over the past year, the Service said.

Some 588 bankruptcies were also registered, which was 36% lower than in February 2021 and 62% lower than February 2020.

Christina Fitzgerald, vice president of insolvency and restructuring trade body R3, said: “It’s clear that the economic issues of the last two years are starting to take their toll on people’s financial health.

“In addition to the issues created by the pandemic, rising fuel and energy costs are a big concern for many and wages are failing to keep pace with inflation. As a result, there are a lot of people who are worried about their financial prospects in the months ahead.

“Our message to anyone in this position is simple: seek advice as soon as possible. The earlier you do, the more potential options you have to resolve your situation, and the more time you have to take a decision about how you move forward.”

Some 1,515 company insolvencies were also registered in England and Wales in February 2022.

This was more than double the number registered in February 2021, when the total was 685.

It was also 13% higher than the pre-lockdown total of 1,346 in February 2020.

Ms Fitzgerald said: “Consumer spending has declined and consumer confidence is low as people worry about the economy and their own financial position, with inflation now a real problem for firms and individuals alike. This situation is unlikely to improve any time soon given the impact the war in Ukraine will have on energy costs.

“In addition to this, the restrictions on using winding-up petitions are coming to an end later this month – something which could see an increase in creditors turning to legal action to recover unpaid debts.

“Now is the time for directors to be alert to the signs of financial distress and to take action if they show themselves.

“We know conversations about a business’ financial position are some of the hardest to have, but speaking up about your concerns at an early stage typically leads to a better outcome than if you’d waited until the problem worsened.”