More people becoming insolvent in England & Wales

More people become insolvent in England Wales in 2010

Figures released by the government recently show that a record number of people were declared insolvent in England and Wales last year. There were 135,089 people declared insolvent in 2010 according to Insolvency Service. This mean the figure for 2010 is up 0.7% on 2009 figures and the highest level of insolvency since 1960. Though the figure is gloomy for personal insolvencies, for companies going out of business, the news was better as there was 23% less company going out of business in 2010 compared with 2009.

Debt, Debt and More Debt

The record number of personal insolvencies for the whole of 2010, which was double the number in 2005, came despite a drop in the final quarter of the year when 30,729 individuals were declared insolvent.

Experts suggested this fall at the end of the year was the result of fewer people being able to attend court proceedings owing to the weather, a more sympathetic attitude from lenders, and people putting off insolvency until the new year.

Insolvencies throughout 2010 were driven by a 6.5% rise in Individual Voluntary Arrangements (IVAs) – which allow an official deal to be struck between the debtor and creditors – to 50,716.

There were also 25,179 Debt Relief Orders – a relatively new style of insolvency for relatively low debts.

However, the number of people taking the more traditional bankruptcy route fell by 20.7% compared with 2009 to 59,194.

Compared with the last recession in the early 1990s, the latest figures show a very different picture.

The number of individual insolvencies has shot up in the past decade, and now far outstrip the numbers seen in 1992 and 1993 of about 37,000 each year, although it is easier now to be declared bankrupt.

Experts said this was because the amount of credit built up by individuals – especially on credit cards – mushroomed in the last ten years. IVAs were also in their infancy in 1992-93.

Debt Consolidation – Put all your debts in one basket

Debt Consolidation UKThe global meltdown that started with the subprime crisis in the US had its cascading effect on many other economies since we are in an era of connectivity and the world is a global village. The financial problems of one country cannot be wished away since there is bound to be some fall out in other countries and that is what the world experienced after the collapse of some of the financial institutions in the US.

UK too had to bear the brunt of this not only due to the general financial crisis linking its own banks and lending institutions but also because of poor management of finance and indiscriminate extension of credit to people who in the first place did not qualify for them. The net result is that there are many in the UK who have run up huge debt and are now wondering how to get out of this trap they have led themselves into. Many are seeking counseling from finance experts and are trying to exercise options suggested by them such as debt consolidation as nobody wants to declare themselves bankrupt and face a whole different set of problems down the line.

However, the positive thing for UK residents is the existence of an instrument called debt relief order whereby people with no tangible assets and very little income can buy time for up to a year to either pay up whatever he or she can or have the debt written off after a year. During this period, the creditor is not allowed to take any action against the defaulter. This scheme does have a limit and other conditions that need to be satisfied by the beneficiary, but at least there is a mechanism in place.

The UK is also different in the sense that the government makes available many social health programmes and also takes it upon itself to solve problems of debt or insolvency of its citizens.

Another option is that of debt consolidation.

Under debt consolidation, the borrower takes a loan at a much lower interest rate and makes use of it to take care of other debt. This is an effective way to handle or settle credit card as well as other overdrafts. This instrument can also be used for personal requirements such as purchasing a vehicle, renovating the house or taking a vacation.

This debt consolidation loan can be of two types – the secured and the unsecured. In the former case, you are required to provide some security which can be in the form of the house, car or some other real estate papers and so on. The tenure of the loan you can take under this can range from between five to thirty years and you can draw between £3000 to £50,000. The only aspect to take care is that of repossession of the security by the lender in case of any default.

In the latter case or the unsecured debt consolidation instance, the loan tenure is a short one of between five to ten years and the amount that can be drawn is between £3000 to £25,000. The interest rate is higher in case of the unsecured one, since the lender is exposed to a higher risk.