After a recession, it's normal to see people struggling with their debts. According to R3, the insolvency trade body, it's also normal to see numbers of insolvencies rising some time after the recession has officially come to an end.
Two sets of figures have recently been published: the monthly lending figures from the Bank of England and the quarterly insolvency figures from the Insolvency Service.
Latest debt figures
At the end of September, the UK population collectively owed £1.455tn. That figure might sound daunting, but it's actually less than the £1.462tn we saw in January and February this year. Debt might be high, but it's not as high as it has been.
Around a seventh of the outstanding total was what the Bank calls 'consumer credit', also known as unsecured debt.
The majority, however, was secured against property, which means house prices are a major factor here - with fears of a further drop in prices ahead, a lot of homeowners are very worried about being 'trapped' in negative equity if they end up owing more on their home than it would be worth if they came to sell it. A recent study by the National Housing Federation found that the average house cost over £216,000 in 2009 - more than 10 times the average income - so house prices could have a very long way to fall.
Latest insolvency figures
In the third quarter of the year - often simply called Q3 - a total of 33,935 people in England and Wales were declared insolvent, entering bankruptcy, an IVA (Individual Voluntary Arrangement) or a DRO (Debt Relief Order).
Again, it's a large number, but again, it's actually smaller than we've seen in the recent past. In the first quarter of the year, an all-time high of 35,682 people entered insolvency.
And we're seeing some significant changes in the way people are entering insolvency. Back in the second quarter of 2009, almost 19,000 people entered bankruptcy, while almost 2,000 people made use of the newly introduced DRO. Five quarters later, bankruptcy numbers were down to under 14,000, while the number of DROs had risen to over 7,000.
In just a year and a half, in other words, the bankruptcy-to-DRO ratio has changed hugely, going from around 10:1 to around 2:1.
Debt & insolvency
The Oxford dictionary defines insolvent as 'unable to pay debts owed'. So there's a clear link between debt and insolvency - if someone's debts rise too high, they may find there's no alternative to entering an insolvency procedure of some kind.
However, it needn't always work out that way. A lot of people with debt problems will be able to tackle their debts without having to resort to insolvency.
The first step is to get some debt advice. A few pointers about budgeting more effectively, finding cheaper deals on things like gas and electricity and/or finding areas where they can cut back on their non-essential spending could be all someone needs to bring their finances back under control - and start making some real progress on their debts - before they reach the point where insolvency is the only realistic option.
However, if someone's situation has already deteriorated beyond the point where this kind of advice could help, they might need to consider a debt solution such as debt management - although it's vital they get some professional advice and explore all their options before they commit themselves.
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