Personal insolvency rates soar due to lifestyle changes
Lifestyle expectations and changes in bankruptcy laws are to blame for the worrying rise in personal insolvencies, according to insolvency expert Philip Long of accountants and business advisers PKF.
Figures released earlier this month show that personal insolvencies this quarter (Q3) have risen 11.6% on last quarter and have increased 46% on the same period a year ago. There were 17,562 individual insolvencies in England and Wales in Q3 of 2005.
Philip Long, head of corporate recovery at PKF, said: "The worrying rise in personal insolvencies further illustrates that consumer debt is unsustainably high. Lifestyle expectations have changed. Fifty years ago buying on credit was the exception and a last resort for many. Nowadays credit is so easy to obtain that people buy before considering whether they can afford to repay the debt and with little fear of what will happen if they cannot."
"The Enterprise Act of 2002 has made bankruptcy more of an option for many who would never have considered it before. Under the Act, those declaring themselves bankrupt can be discharged after one year rather than three. Although being declared bankrupt will never be a pleasant experience, 12 months is a comparatively small price to pay for the relief of wiping the debt slate clean."
This high level of personal insolvency can have a negative impact on the whole economy as the debt does not just disappear; it needs to be met by someone. Unpaid debt will impact on a wide range of sectors especially retail, property and banking.
PKF advises people to think twice before getting another credit card, loan or overstretching themselves on their mortgage – if they are hit by unexpected events such as a relationship break down or the loss of a job they may find that their debt is no longer manageable.
Philip Long said: "Any insolvency procedure will affect a person's future credit rating and they might find that their career is adversely affected – for instance, many professional bodies do not permit membership if a person has been subject to a bankruptcy restriction order or undertaking."
Posted November 9, 2005
