Figures from the Insolvency Service show that personal insolvencies rose again in the second quarter of 2010, with a 5 per cent increase compared with the same period the previous year.
The same period saw a huge increase in those applying for a Debt Relief Order (DRO), which is substantially cheaper than filing for bankruptcy. There are certain eligibility criteria that apply, however. For example, to be eligible for a DRO, an individual must have less than £15,000 in debts and a low income. They cannot have more than £300 in valuables, savings or a private pension fund, nor own a vehicle worth more than £1,000. The cost of a DRO is approximately £90, a cheaper alternative than the £600 fee required for bankruptcy.
Although personal bankruptcies have decreased by over 20 per cent year on year, there has been an increase of over 10 per cent in Individual Voluntary Arrangements. In the third quarter of 2010, there was a 25 per cent reduction in the number of personal bankruptcies compared with the same period in 2009, resulting in the lowest number per quarter since 2005.
Given that it is increasingly difficult to obtain personal credit, analysts have said that people are now only able to spend the money they have, with little opportunity of obtaining money through loans, credit cards and re-mortgages. Owing to the Coalition Government’s policy of spending cuts, it is thought unlikely that the fall in bankruptcies will continue. Although a large number of public sector workers are set to lose their jobs, they will receive redundancy payments, which may stave off financial difficulties in the short term..