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KPMG predicts, however, that as home repossessions and household bills increase so will the number of insolvencies.

The figures show that 106,645 people went into bankruptcy or entered into an Individual Voluntary Arrangement (IVA) in the 12 months ended 31 December 2007, a decrease of one per cent over the previous 12 months.

In the most recent quarter there were 23,830 personal insolvencies representing a fall of 17 per cent on the same period in the previous year.

End of cheap fixed rate deals

Mark Sands, Director of Personal Insolvency at KPMG said that one of the main reasons for the two consecutive falls after many years of quarterly increases is the drop in the number of IVAs.

IVAs have come in for criticism following concerns about whether they are always the most appropriate course of action for the individual.

Sands said that the broader picture is that although the number has dropped, almost every economic indicator suggests that things are going to get worse before they get better.

“Even with interest rates starting to fall, 1.4 million homeowners face the end of cheap fixed rate deals this year, and the FSA has identified more than 1 million borrowers that are ‘most likely to default on loans’ and that is a cause of great concern,” he added.

Continued pressures 

He explained that if people struggling with debt lose their home they often give up and either go bankrupt or enter into an IVA.

Sands warned that the continued pressures from council tax, energy and other household bills threatened to push those already struggling with debt over the edge.

He believes that the danger is that consumers over react to the regular news of pressures building in the economy.

Whilst many individuals will have to take formal steps to deal with their over indebtedness in the months and years ahead, Sands said that numerous others may be able to take advantage of informal arrangements and tighter budgeting to avoid the worst effects of over indebtedness.

“The message to everyone in difficulty is to take advice on all the options and then to act on that advice,” he commented.

High IVA rejection rates

The figures also show that IVAs, the flexible alternative solution for the over indebted, once predicted to overtake bankruptcies, actually fell in the most recent quarter by 27 per cent compared to a year ago.

This quarter saw a continued slowing in the use of IVAs following concerns over whether they were always being used in appropriate circumstances.

According to KPMG’s analysis 14 per cent of IVAs put forward in the last quarter were rejected.

IVA Protocol

Sands pointed out that creditors had been taking a harder line in deciding which IVAs to accept and that debt solution companies had been wary of putting forward IVAs which may not meet the approval of creditors.

He is convinced that the IVA remains appropriate for many people and welcomed the IVA Protocol which should make this solution available to more struggling consumers.

KPMG especially welcomed the agreement to encourage consumers to reach an informal agreement with their creditors before being recommended for an IVA.

The data prepared by KPMG also showed that average debt owed by someone entering an IVA in the last quarter was £50,090 and that in the same period more than 500 people entered into an IVA with debts in excess of £100,000.

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Related links

• KPMG
• Insolvency Service