Figures from the Insolvency Service have shown that personal insolvencies rose again in the second quarter of 2010 by an increase of 5% in comparison to the same period the previous year. The same period, however, saw a huge increase in the new debt relief orders, which is substantially cheaper than bankruptcy. Eligible individuals must have less than £15000 in debts and a low income. They cannot have more than £300 in valuables, savings or a private pension fund, nor own a vehicle worth more than £1000. The cost of a debt relief order is approximately £90, compared to the £600 required for bankruptcy.
Although personal bankruptcies have decreased by over 20% year on year, there has been an increase of over 10% in personal IVAs. In the third quarter of 2010, the reduction in the number of personal bankruptcies was 25% compared with the same period in 2009, which is the lowest number per quarter since 2005.
Given that it is increasingly difficult to obtain personal credit, analysts have said that people are now only able to spend the money they have than obtain money through loans, credit cards and through re-mortgages. Due to the coalition’s spending cuts, it is difficult to see whether the drop in bankruptcies will continue. Although a large number of civil servants are set to lose their jobs, they will be given redundancy payments which may stave off financial difficulties in the short term.