Bankruptcy figures continue to fall in 2015
- 28 Oct 2021
Since peaking in 2009 the number of people going Bankrupt in England & Wales has been falling year on year ever since. In Q2 2015 just under 4000 people went bankrupt. This was the lowest number in any quarter for 5 years. In contrast in the same quarter in 2014 the number was 5470. In 2009 it was 18,870.
Why are fewer people going Bankrupt in England & Wales?
The simple reason fewer people are going bankrupt is that the economy is improving. Wages are now on the increase and the cost of living is relatively low due to suppressed interest rates and inflation. As a result many people are feeling financially better off. They are therefore managing to resolve financial difficulties without having to consider a debt solution.
Hand in hand with this the banks are starting to lend again. Options for taking unsecured loans and mortgages are increasing every day. People are therefore finding it easier to overcome financial problems by borrowing consolidation loans or releasing equity from their property.
In the past I have suggested that a significant reason for the reducing bankruptcy figures is cost. I have argued that the Court Fee which has to be paid up front is enough put people off. As such they have been almost forced to choose a different solution. However this does not explain why the reduction is now reflected across all the different types of personal insolvency including Debt Relief Orders and Individual Voluntary Arrangements. As such I feel the wider economic forces are the main driving factor.
Why were more people going Bankrupt before the Recession?
To suggest the improving economy has lead to falling bankruptcy figures is reasonable. However if it is true then why were more people going bankrupt in the years before the recession when the economy was booming? In 2006 alone nearly 63,000 people went bankrupt (25% more than in 2014 including Debt Relief Orders). At that time most were feeling very positive about their future.
The main reason for this is that in 2006 the country had passed through almost 10 years of relaxed bank lending. Over a long period individuals had found it comparatively easy to borrow in the form of loans, mortgages, credit and store cards. This meant that many were allowed to over extend themselves.
As a result the number of people getting into financial difficulty from over borrowing was massive and reflected in the bankruptcy figures. Today the economy is growing again. However the last 5 years of restricted borrowing has left fewer people with unmanageable debts. As a result there are simply fewer who feel the need to go Bankrupt.
Are the Bankruptcy figures likely to continue falling?
In October 2015 the level of debt that can be included in a Debt Relief Order (DRO) will increase to £20,000. As such there is likely to be a slight increase in people who chose this solution over Bankruptcy. This may reduce the number of bankruptcies still further.
The Bankruptcy application process is due to become easier sometime in 2016 with the introduction of an on-line application process. This might encourage more people to go bankrupt if the idea of having to submit their application in Court put them off before. However with no change in cost anticipated I do not think this will have a major impact on the overall numbers.
It is likely that interest rates will start to increase in 2016. However this will be extremely gradual. As such I do not believe the change will lead to a huge increase in financial hardship. Mortgage payments for many will go up. The cost of renting privately might also increase as a result. However in reality only by minimal and manageable amounts which should be offset by increasing wages.
Given this I find it hard to conclude that the number of bankruptcies will start to increase again anytime soon. I believe the current downward trend is likely to continue during 2015 and possibly beyond.