Insolvencies calm before a debt storm

It is believed the numbers for the last three months of 2009 will not hit the high of 35,000 in the previous three months – as indebted borrowers tend to put off fixing their finances over Christmas.

However, the level of insolvencies is expected to rise further throughout the year as people face up to their debt mountains in 2010.

Insolvencies generally continue to rise even after the economy has recovered from recession, as the effects of unemployment continue to be felt.

The ready availability of quickie bankruptcies or Debt Relief Orders (DROs) is also expected to boost the number of people filing for insolvency this year. The statistics are made up of people filing for DROs, formal debt plans called Individual Voluntary Arrangements (IVAs) and bankruptcies.

The majority of people still generally opt to wipe the slate clean by choosing bankruptcy over repaying their debts, although they are signs debtors are hoping to avoid the onerous repercussions of this by choosing formal debt plans instead.

However, hundreds of thousands of debtors are believed to use informal debt arrangements that can stretch over 15 years called Debt Management Plans, which are not charted by the industry.

Louise Brittain, from Deloitte’s insolvency arm, believes tomorrow’s figures will show there were 32,000 insolvencies between October and December, down from 35,000 in the previous three months.

She also predicts insolvency figures to reach 145,000 in 2010, which will smash all previous records.

source: ThisisMoney.co.uk