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IVAs & insolvencies reach all-time high

The number of people entering an IVA in England and Wales reached an all-time high in the final quarter of last year, official figures from the Insolvency Service have confirmed. The overall number of personal insolvencies also reached a new high.

Between October and December 2009, 13,219 people in England and Wales entered an IVA to tackle unmanageable debt. Prior to this, the most people ever to enter an IVA in one quarter was 12,665 - in the third quarter of 2006.

The number of people entering bankruptcy actually dropped, falling from 18,347 to 17,007, but this drop was more than offset by the increase in IVAs and DROs (Debt Relief Order): there were 5,348 DROs in the fourth quarter of the year, marking an increase of around 19% on the previous quarter`s figure of 4,505.

As a result, there were 35,574 personal insolvencies in total (bankruptcies + IVAs + DROs). Around 1% higher than the figure from the previous quarter, this was almost 25% higher than the figure for Q4 2008.

Worryingly, there are reasons to expect insolvency levels to climb still higher as we emerge from recession. Insolvency trade body R3 - the Association of Business Recovery Professionals - has published a `briefing paper` entitled The "insolvency lag": risks for 2010, which states that `Evidence from previous recessions shows early recovery is a dangerous time for struggling businesses and individuals`.

After the recession in the 80s, the paper explains, there was a `lag` of three years before personal insolvencies reach a peak - and after the 90s recession, it took 18 months for personal insolvencies to peak.

`The lag is most simply explained by the fact that it takes time before any return to growth is translated into tangible relief for business owners and individuals,` the paper explains.

`Though the overall economic outlook may be brighter, it is usually some time before creditors begin to lend at pre-recession levels or before employment and spending pick up.`

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