Dozens 'Going Bankrupt' Every Day, New Figures Showposted on 7 August 2010 | posted in General Category | ( 0 ) CommentsMore than 4000 firms were forced into liquidation over the past three months, an increase of 0.5 per cent, according to the Insolvency Service. But the statistics, released in a week when banks reported profits of more than £15 billion, were down by almost a fifth compared to the same time last year. The figures appear to show that many firms were still struggling through the effects of the recession. It has led to some calls for banks to lend more. Due to an "inevitable" rise in interest rates many firms were looking at a tough future. It will not take too much of an increase to actually force some of those struggling, debt-laden businesses to call it a day. Friday’s figures also showed the number of people being declared insolvent had also risen. A total of 34,743 people were declared insolvent during the three months, five per cent more than during the same period a year earlier. The figures are lowere than the previous quarter, but experts suggested worse is to come as public spending cuts come into effect. Despite the economy emerging from an 18-month recession and growing twice as fast as expected in the second quarter of this year, many fear the government’s austerity drive put that in jeopardy. This is just a temporary reprieve before any impact of the planned spending cuts kicks in. It’s not only a total loss of income that forces people down the insolvency route; it’s any reduction in income. The mooted movements of the public sector workforce to the private sector could lead to a period of unemployment and even a pay cut leaving them unable to cover their monthly outgoings and unfortunately this is likely to be but a temporary reprieve. The broader economic picture suggests a bleak future for a large number of people as they struggle to pay off their debts whilst employment prospects, especially in the public sector, continue to be uncertain. The individual insolvencies consisted of 14,982 bankruptcies – which were down on the same period a year ago and 13,446 of its less stringent form, Individual Voluntary Arrangements (IVAs) – which were up on the same period in 2008. An IVA is an arrangement that is entered into with those owed money and can be very expense because of the fee's involved, while a bankruptcy involves a formal court order where possible assets are sold to pay off creditors, but the bankrupt has the slate wiped clean and can start a fresh. An alternative to bankruptcy – a debt relief order (DRO) – is also available, but various restrictions limit those who can apply, such as not owning your own home,having debts of less than £15,000, and having less than £50 per month disposable income. The number of DROs reached 6,295, the highest level since they were first introduced by they are really not an ideal debt solution as the criteria to enter one is difficult. Many consumers are still highly stretched financially and public sector spending cuts are only going to make things worse over the course of the next two years. We feel that this is the lull before the storm. The smaller first wave of more extreme cases may be behind us but the larger second wave of the mass of people who are still in a perilous condition financially is now approaching and those are the people who will wanting to be petitioning for their own bankruptcies. Share this blog entry:
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