2021 Bankruptcy numbers lowest for 10 years
- 12 Mar 2022
In 2021, the number of people who went bankrupt in England & Wales reduced to just under 8,700. A fall of nearly 30% compared to 2020.
Included in this article:
- Why are the bankruptcy numbers falling?
- Are there less people with debt problems?
- Is a Debt Relief Order a better option than bankruptcy?
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Why are the bankruptcy numbers falling?
The number of people who went bankrupt in England and Wales fell significantly in 2021. The total of 8,688 was 30% less than in 2020 and nearly 50% less than 4 years ago in 2018. There is a combination of reasons for this.
The first and perhaps most obvious is the Covid 19 pandemic. Since March 2020, the Government has given away billions of pounds. It has also instructed creditors such as banks to be more lenient in their enforcement of unpaid debt. This has supported people who would have otherwise faced financial disaster during the periods of lock down and self isolation.
Based on the falling bankruptcy numbers, the Government strategy has worked very well. However, Covid 19 funding and forbearance measures are not the only reason for the reduction. In reality they have been reducing steadily for the past 10 years.
To understand this, we also have to consider the increased use of Debt Relief Orders. Introduced in 2009, this debt solution offers a more affordable form of bankruptcy while providing much the same outcome. If you add the number of bankruptcies and Debt Relief Orders together, the overall reduction in the figures is not so dramatic.
During 2021 over 20,000 people started a Debt Relief Order. This solution has a similar outcome to bankruptcy but is designed for people on lower incomes and is far cheaper to implement.
Are there less people with debt problems?
The headline of reducing bankruptcy numbers suggests that the amount of people struggling with debt in the UK is falling. In fact, this is unlikely to be the case. To get a more complete picture, we also need to consider how many people are using other debt solutions.
One of the most popular alternatives to bankruptcy is the IVA. In 2021 just over 81,000 started this solution. This is the highest figure since it was introduced.
Adding all of the formally recorded debt solutions together, we find that the total number in 2021 was actually similar to that of 2020. The total figure was 10% lower than 2019. This fall is reasonably explained by the financial support and collections forbearance offered during Covid.
Will the number of people forced to find a debt solution start to increase again in 2022?
There are two main reasons why this might happen. The first is that the Government’s Covid support has now stopped. Creditors (in particular HMRC) are now starting to enforce unpaid debts. Secondly, the cost of living is increasing at its fastest pace in 30 years. A significant cost of living squeeze will mean more people will be unable to keep up their agreed debt repayments.
Family energy bills could rise by hundreds of pounds a month in 2022. If so, many will find it much harder to pay their debts.
Is a Debt Relief Order a better option than Bankruptcy?
The Debt Relief Order (DRO) solution was introduced in 2009. The idea was to give many of the advantages of bankruptcy, but with a far lower application fee.
The end result of a DRO is very similar to bankruptcy. The solution lasts 12 months. All the money you owe is then written off. You do not have to make any further payments towards your debts. For this reason, if you qualify, it may well be a better option simply because is it cheaper to implement.
That said, not everyone can start a DRO. You have to meet certain criteria such as your total debt must be less than £30k and your surplus income less than £75/mth. In addition you can’t be a home owner.
The other issue with is that this solution it is often difficult to implement quickly. You can go bankrupt within a couple of days and get immediate protection from your creditors. However, a DRO will often take weeks or months to set up because you need a specially licensed person called an authorised intermediary.
Bankruptcy could be an ideal solution to resolve your debt problems. For more free, confidential advice, give us a call (0800 044 3194) or complete the form below.