The number of people who have gone Bankrupt has fallen by just over 27% in the last twelve months according to the latest government statistics.

Despite bankruptcies falling by 27%, across all of the formal debt solutions the numbers declaring themselves insolvent fell at a more modest rate of 10% in the second quarter of 2012 compared to the same quarter in 2011.

In fact so far in 2012 there has been very little change in the figures. But this is still surprising given the ongoing difficulties in the UK economy. So how can we make sense of these figures?

Low mortgage payments are possibly reducing debt problems

Since 2009, pretty much the same time as interest rates were reduced to just 0.5 percent by the Bank of England the formal personal insolvency figures have been falling. There seems a clear correlation between the low cost of mortgages and falling personal insolvency.

In many instances homeowner’s mortgage payments are now half their pre 2009 amounts. This massive fall in one of the largest monthly expenditure items a family has to face has almost certainly helped to offset the falls in income that many have suffered since the onset of the recession.

People who would otherwise not been able to pay their debts and would have been forced into using some type of debt management solution have avoided this because of low interest rates. As such the numbers using formal insolvency solutions has been falling.

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Is the fall in Bankruptcies because of the cost?

A possible explanation for the astonishing drop in the number of people going Bankrupt is the cost of the process. Where a couple are both considering going through the process then cost for both parties is a jaw dropping £1410.

BMD Tip: The cost of declaring Bankruptcy rose to £705 in April 2014

For people with no spare cash this is an extremely difficult sum to get together and so they are avoiding it and instead using alternative solutions such as the Debt Relief Order (DRO) or Debt Management Plan (DMP.

For people whose debts are less than £15000 and are on low incomes the DRO is an attractive option. The cost of implementing it is just £90 per person and largely for this reason there are now almost the same number of new DROs being put in place as bankruptcies.

The cost of implementing a DMP (for which there are no official figures) is generally next to nothing.

Overall figures remain stable in 2012

Amongst the headline figures, it is important to highlight that in fact so far in 2012 the number of people using formal debt solutions has remained broadly static falling just 0.5% between quarter one and quarter two.

It is possible that the trend of falling numbers of people declaring themselves insolvent has bottomed out?

It is very difficult to see the true story because of the fact that so many people with debt problems opt for the informal debt management plan solution the numbers of which are not formally recorded.

However my view of the formal numbers remains the same as it did at the start of the year which is they are likely to remain the same while interest rates are unchanged.

However once rates and mortgage payments start to rise, the number of formal insolvencies will dramatically increase.