The Insolvency Service has produced their quarterly insolvency report. This shows 33,935 people declared themselves officially insolvent in the third quarter of 2010. The figures seem encouraging as they have fallen 3.7 percent compared to the same quarter in 2009. They also fell nearly 2.5% compared to Q2 2010. The figures are made up of people who solved their debt problems by going bankrupt, starting a Debt Relief Order (DRO) or an Individual Voluntary Arrangement (IVA).
Why are is the number of debt problems falling?
The falling number of debt problems is at odds with other reports in the media of government cuts, a rising cost of living and reducing numbers of job opportunities. In such an environment surely one would expect a rise in the number of people with debt problems.
One explanation is that the official insolvency figures do not record the full picture of personal insolvency. This is because hundreds of thousands of people each year choose to solve their debt problems using the informal option of a Debt Management Plan (DMP). People using these Plan are just as insolvent as those declaring bankruptcy or undertaking IVAs. However there are simply no official records of the numbers using them.
Debt charities such as the CCCS and CAB say they have never been busier. Given that these organisations favour debt management plans it could well be a fair assumption that the number of insolvent individuals is static. There is even the possibility that it is increasing.
Will Debt Problems keep on falling?
The future prospects for a continued trend of falling numbers of debt problems is not great. With VAT due to increase to 20 percent in January 2011 the cost of living will continue to rise. People who are struggling with debts but just managing to keep their heads above water could well be pushed under.
In addition the big worry is interest rates. When they eventually do increase, the cost of thousands of home mortgages will also go up. Many people will simply not be able to afford this increase and find themselves in a position where they are no longer able to pay their debts.
This does not necessarily mean that homes will be repossessed. Debt solutions can be used to protect mortgage payments. while reducing the cost of other unsecured debts so that the risk of repossession is minimised.
Make plans to deal with debt problems early
Despite the recent figures, the number of people in a position where they are unable to pay their debt is still presents a huge problem. It does not look like things are going to become any easier during the next twelve months. And if interest rates do start to rise, the problems could escalate significantly.
In this environment, it is more important than ever that people anticipate financial difficulty and start making plans to deal with it. If you feel that you are currently struggling with debt, getting advice early can prevent a difficult situation from turning into total financial disaster.
