IVAs, or Individual Voluntary arrangements,are a way to avoid bankruptcy by repaying an affordable payment each month, normally over a reasonable 5 year period, with the remainder of the debt written off.
According to a a report from the insolvency service earlier this year the number of IVAs rose by 5% between April and June. The most in any quarter since they were introduced in 1987.
The insolvency Service said individual insolvencies totalled 28,951 in the three months to June, a jump of 4.4% on the previous quarter and 27.3% on the same period last year.
This shows a six-year high for insolvencies as finances come under pressure.
Low income workers feel squeeze from meagre wage rises and benefit cuts and from high inflation
With inflation taking an unexpected jump to 2.7% this month a ‘Food and Drink Federation’ survey suggests since the UK voted to leave the EU the fall in the value of the pound has meant it has cost food and drink companies more to import ingredients form abroad. More than three quarters of manufacturers expect input prices to rise in the rest of this year. More than half had seen increased ingredient costs, increased packaging costs and increased energy costs
Along with inflation, wage stagnation, below inflation wage rises have been made even worse by benefit cuts.
Recent studies suggest that 4 out of 10 households in the UK are consistently struggling each month just to make ends meet.
What the Insolvency Service figures show.
The Insolvency service is a government agency,
They said it was clear the trend had been rising steadily since 2015 to reach the highest quarterly total since the first quarter of 2012.
It said the upswing was driven by a record number of people taking out IVAs, where debtors agree to repay creditors some or all of what they owe.
What the experts are saying.
Stuart Frith, the president of the insolvency trade body R3, said:
“There are plenty of reasons why people might be feeling the pinch. Wage growth is barely higher than inflation after a long period of real wage falls.
“Although unemployment is low, there are more people earning variable amounts in the gig economy, which can make budgeting difficult.
“Meanwhile, outstanding consumer credit volumes have been growing, as has the average amount of debt per head.”
The Office for National Statistics (ONS) said:
“Analysis of income and spending figures showed that last year Britons spent more than they earned for the first time since 1988.”
Researchers at the ONS found that British households spent around £900 more on average than they received in income during 2017, with those on low incomes the most likely to borrow extra cash to boost their finances.
David Birne, an insolvency partner at the chartered accountants HW Fisher said: –
“People struggling to pay bills faced a bleak future should interest rates begin to rise.”
“Just days before the Bank of England is expected to pull the trigger on an interest rate rise, this is a stark reminder of how many Britons are in the firing line.”
“Those who’ve been relying on credit to fund a more comfortable lifestyle – who are often the poorest and most vulnerable – are sitting ducks to interest rate rises.”
Personal insolvencies fall into three main categories.
Personal insolvencies fall into three main categories – bankruptcies, IVAs and debt relief orders (DROs) – but exclude the thousands of debt management plans people agree with their banks.
The Insolvency Service said nearly two-thirds (62%) of personal insolvencies in the second quarter of 2018 were IVAs, around a quarter (24%) were DROs and 14% were bankruptcies.
There were 17,987 IVAs, marking a 5.7% increase on the first three months of this year – and “the largest quarterly number of IVAs since they were introduced in 1987” – the report showed.
The figures also revealed a fall in company insolvencies in England and Wales in the second quarter from a spike last year when a number of retailers filed for bankruptcy.
A total of 3,918 companies entered insolvency in the second quarter of 2018, consisting of 2,731 creditors’ voluntary liquidations, 752 compulsory liquidations and 435 other insolvencies.
Good Debt advice is crucial
For those still struggling with debt it is vital they seek out good debt advice. A good debt advice company will explain all the options available to them, completely free of charge.
Not everyones situation is the same and they should always explore what is the right solution for their clients. They should never apply any pressure and give people time to decide what they would like to do.
If they decide to move forward and go ahead with a recommendation, the debt advice company should be there to guide them through the process and answer any questions they may have along the way. And they should do this in a kind and understanding way.
There are some really good debt advice companies and it is important to find the right one.
If you need help with your debts you can find more information about the options available to you on our website. Or, you can give us a call and have a chat about how we can help. All of our advice is free and we have helped 1000s of people to become debt free. We care about our clients and will always do our very best to put people at ease and find their way to a debt free future.
You are not alone, 4 out of every 10 households are struggling with debt in the UK. Millions of people are suffering stress and mental health issues over their finances, so it is important to remember there are people who can and want to help. You can join the 1000s we have already helped.
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