Experts believe that low interest rates are preventing the number of bankruptcies from rising.
Latest figures released by the Insolvency Service show that the number of personal insolvencies, which include people declaring themselves bankrupt or taking on an IVA (Individual Voluntary Arrangement) are stabilising at approximately 30,000 per quarter.
In the three month period from April to June 30,513 people became personally insolvent, this is the third quarter in a row where the number has been around 30,000.
Low interest rates
Experts have suggested that one reason for this is the low level of interest rates, which were held at 0.5% by the Bank of England this week for a 29th month in a row.
Louise Brittain, an insolvency partner at Deloitte, said: “Low interest rates have given households an extended lifeline.”
The number of insolvencies rose significantly in 2007 as the economic downturn started to bite and IVAs became popular. Since then the environment of low interest rates and newly found caution over credit has led many people to try and reduce their levels of debt.
Louise Brittain again: “We are gradually moving into a period of ‘concentrated payback’, where fears around low economic growth, job security and general living costs have resulted in households working hard to pay back debt incurred in previous years.”
IVA
An IVA is a formal arrangement with creditors which can help an individual avoid bankruptcy.
Unusually only unsecured debts are included within an IVA, which is set up with the help of a Insolvency Practitioner.
The terms of an IVA vary from person to person and can be based on their income, capital, or a combination of both. The agreements can be any period in length, although five years is common.
First introduced in 1986 IVA’s became increasingly popular during the last recession as people who had accumulated debt, which now could not be repaid, tried to avoid bankruptcy.
