During Q1 2023, the Insolvency Service reported that there were 29,017 individual insolvencies. As shown below, these comprised of 20,246 Individual Voluntary Arrangements (IVAs), 7,034 Debt Relief Orders (DROs) and 1,737 bankruptcies. This graph shows the long-term trends dating back to 2003.
Individual insolvencies in Q1 2023 were similar to Q4 2022, but were lower than Q1 2022
Source: Insolvency Service
Looking at Q1 2023, IVAs were the most common individual insolvency procedure, accounting for 70% of cases, followed by DROs (24% of cases) and bankruptcies (6% of cases). IVAs make up a larger proportion of individual insolvencies than in the past and bankruptcies a much smaller proportion. Five years ago (Q1 2018), IVAs made up 61% of individual insolvencies, compared to 24% for DROs and 15% for bankruptcies, while ten years ago, 48% of individual insolvencies were IVAs, compared to 27% for DROs and 24% for bankruptcies.
Bankruptcies in Q1 2023
After seasonal adjustment, the number of bankruptcies registered in Q1 2023 increased by 7% from the previous quarter and by 4% on the same quarter last year.
Bankruptcies consisted of:
1,449 debtors’ applications, which was 11% higher than Q4 2022 and 1% higher than Q1 2022
323 creditors’ petitions , which was 15% higher than Q4 2022 and 23% higher than Q1 2022.
Although the number of bankruptcies in Q1 2023 remains historically low it is interesting that the number of creditor petitions in Q1 2023 was the highest since the beginning of the pandemic.
Creditors pursuing debts
If you are owed a significant amount of money it can have a devastating impact on your business’s cashflow, and in some cases, it’s commercial sustainability. There are a number of ways of trying to recover a debt from an individual or partnership but bankruptcy petitions tend to be the most effective means of gaining a response from a debtor.
During the period when the UK was affected by the pandemic, creditor bankruptcy petitions were restricted by the reduced operation of the courts and HMRC’s reduced enforcement activity. Also, individuals, whether trading or not, were supported by numerous government support initiatives. More generally, it is also likely that payment holidays for mortgages, credit cards, car finance and loan will have also mitigated the impact of coronavirus on personal finances thus, reducing personal insolvency figures.
The current economic landscape has completely changed. Creditors are now looking to actively pursue their debts, particularly as they are feeling the financial pressures brought on by increased interest rates and an explosion in the cost of living.
Bankruptcy petitions - obstacles you may experience
Breathing Space (Debt Respite) scheme - This was launched in 2021 and gives individuals legal protections from their creditors for 60 days. There were 23,179 Breathing Space registrations in Q1 2023.
Increased cost of issuing a creditors bankruptcy petition - This type of petition can be issued by a creditor owed money by an individual, providing the debt is over £5,000 and is for an undisputed, liquidated sum. In November 2022 the fee for presenting such a petition increased from £990 to £1500. Court fees were increased to £302.
Risk of incurring costs and not recovering your debt - If a debtor is refusing to pay or giving excuses, quite often it is because they may be already insolvent, but cannot afford to declare themselves bankrupt. Therefore, you could, by taking this course of action, be playing into their hands and doing them a favour.
This is clearly a complex area and petitioning for an individual’s bankruptcy, in order to recoup money you are owed, should not be entered into without carrying out a considerable amount of due diligence. See our Practical Guide to Debt Recovery.
Armstrong Watson’s Creditor Services team has the experience to assist you in this task and can even take away the risks involved in the bankruptcy process. Please get in touch for more information.
