Articles > Insolvency on the Rise

It would seem that Britain’s appetite for credit is beginning to catch up with it, as records show that last year saw the highest levels of personal insolvency ever, with in excess of one hundred thousand people filing for bankruptcy, insolvency or entering into an individual voluntary agreement – a staggering increase of almost sixty percent on the previous year.

While the British public are still seemingly comfortable taking on debt, they do seem to be more wary of what form it is in, the past year or so has seen credit card debts fall significantly as consumers have moved their balances to lower interest rate forms of personal loans, or have made a conscious effort to clear those debts.

Borrowing beyond their financial means is the most common reason why people find themselves in a situation where they cannot afford to meet the repayments on their debts. With the steady increases in house prices over recent years, many people have stretched themselves financially in order to buy a house, and when general inflation and increasing energy costs come to bear on those finances they often break.

Last year may have been a record-breaking one for personal insolvency, but it might not hold that record for long, as with further increases in house prices, energy costs and now a round of interest rate increases, it looks as though financial pressures are going to increase, leading to more and more people having no option but to go down the insolvency route.

There are ways to lessen the chance of being forced to become bankrupt, and budgeting is the most important of these. Working out the exact outgoings will give a clear picture of the financial situation – if the figures show that the outgoing are more than the income, then a restructuring of the debt may be necessary. Moving credit card and other high-interest debts to a personal loan can help, and choosing a longer repayment period will reduce the monthly payments, albeit at the cost of increasing the overall cost slightly.

When faced with insolvency, there are two main options available – the first is to enter into an individual voluntary agreement (IVA), in which the debtor agrees some form of alternate repayment scheme with the creditor, typically this will result in the borrower repaying less than originally intended. The second, more severe, option is to declare bankruptcy. While both options can help the immediate situation, it should be noted that they will severely restrict the credit options of the individual in the future.