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The Rise and Rise of Personal Insolvencies

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The figures released from the Insolvency Service on 1 May 2009 showed that there were 29,774 individual insolvencies in the first quarter of 2009, an increase of 1.6% on the previous quarter and a 19% increase compared to the same period in 2008. This figure is made up of 19,062 bankruptcies, up 23.4% on the first quarter of 2008, and 10,713 Individual Voluntary Arrangements (IVAs), up just 11.8% on the corresponding quarter of the previous year.

No doubt the sharp increase in bankruptcies rather than IVA's on the previous quarter of 2008 is due in part to the increasing levels of unemployment, which has meant that it is harder for individuals to put forward acceptable proposals to their creditors - due to their lack of income.

The fall in house prices and the banks unwillingness to grant re-mortgages has also made it more difficult for debtors to raise funds in order to get creditors onside and to agree to IVA proposals, that may have required an introduction of equity. The increase in bankruptcies in 2008 was due to many individuals seeing bankruptcy as a welcome relief from their debts. This increase is expected to continue to rise throughout the rest of 2009 as more people lose both their house and job, leaving them with no reason not to make themselves bankrupt.

The large number of individual insolvencies anticipated for the rest of the year is likely to be fuelled in part by the introduction of Debt Relief Orders (DRO) last month.

The orders are a fifth of the cost of a debtor's bankruptcy petition, and are available to those individuals with debts of less than £15,000, assets of less than £300, who don't own a property and have £50 or less per month surplus income. An application for a DRO can be made online via an approved intermediary, and provide a quick and accessible way for debtors to deal with their debt.

With levels of unemployment expected to rise, IVA's are expected to become increasingly less popular, with eligible individuals now expected to opt for a DRO instead of bankruptcy. However, their popularity will not be fully known until the second quarter results for 2009 are published by the Insolvency service, but it is estimated that there could be as many as 14,000 a year.

If you have any questions about these or any other issues please do not hesitate to contact one the following members of the Insolvency and Business Recovery Team:

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