Insolvency fall masks problems

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Insolvency professionals trade body R3 is warning that a fall in new personal insolvency cases could be masking an increase in people facing serious financial problems.

According to R3 committee Yorkshire member Gareth Self, an insolvency practitioner with the P&A Group in Sheffield, Government figures record new bankruptcies, Debt Relief Orders (DROs) and Individual Voluntary Arrangements (IVAs), but don’t include new Debt Management Plans (DMPs).

Mr Self says with significant barriers to bankruptcy, DROs and IVAs often mean people who are insolvent have no choice but to enter into a DMP, take out a pay day loan or simply take no action at all.

“Although there were fewer new personal insolvency cases in 2013 than 2012, it is difficult to read too much into this,” says Mr Self.

“The insolvency profession simply hasn’t seen anything like the fallout from the last recession.

“The statistics have been all over the place and have not reflected the levels of personal debt our members are witnessing first-hand.

“Some DMPs result in people stuck in debt for years, with their repayments barely making a dent in what they owe.

“Until the Government begins to monitor new DMPs, the true scale of personal insolvency in England & Wales will be hidden.

“Changes to bankruptcy, DROs and IVAs are also needed to ensure they remain accessible to those who need them.”

Recent research by R3 found that 96,000 businesses would be unable to repay their debts if interest rates were to rise, while 166,000 businesses said they were having to negotiate payment terms with their creditors.