The number of people declared insolvent in England and Wales reached a record high in the third quarter of 2009, according to figures from the Insolvency Service.

There were 35,242 personal insolvencies, a increase of 28% on the same period last year, and a 6% rise on the previous quarter.

However, businesses fared better over the period, with 4,716 company liquidations, a 4.7% quarter-on-quarter fall. However, the number of businesses going bust between July and September was still 14.6% higher than the same period a year ago.

The recession has been fuelling the rise in personal insolvencies since 2007. There are a number of reasons for this. Increased unemployment has left more people unable to pay off outstanding debts, and the onset of the credit crunch meant that many banks limited the amount of cheap credit on offer. Therefore many people were unable to borrow their way out of immediate debt problems. The slow property market has also meant that people could not sell their homes and pay off outstanding debt with the equity.

Individuals who are declared insolvent have three different options: bankruptcy, individual voluntary arrangements (IVAs) and, since April, Debt Relief Orders (DROs).

Bankruptcy lasts only a year, but means you can lose all your assets, including your house, in order to pay the creditors.

Making an individual voluntary arrangement with your creditors involves less stigma than declaring yourself bankrupt, and often means you can keep your house. However, it can take years to pay off your debt.

Debt relief orders were introduced in April of this year. They allow those with debts below £15,000 and minimal assets or surplus income to write-off debts without being declared fully bankrupt.

The Insolvency Service said that 18,347 people chose to declare themselves bankrupt in the third quarter of this year, up 6.4% on the same period the previous year. A further 12,390 chose to set up an IVA, up 20.9%, while 4,505 chose DROs.

“These figures are overwhelming, but not surprising, and unfortunately the end is not in sight,” said Louise Brittain, of accountancy firm Deloitte.

This entry was posted on Friday, November 6th, 2009 at 4:56 pm and is filed under Banking, Credit Ratings and Reports, Loans. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.