Personal insolvencies set to rise, R3 member survey finds

Over 8 in 10 respondents to a national survey of members of the insolvency and restructuring profession carried out by insolvency and restructuring trade body R3, expect personal insolvency numbers to increase within the next 12 months.

Nearly half (44.5%) of the respondents to R3’s member survey who work in personal insolvency say they expect personal insolvency numbers to be somewhat higher than 2019, while two in five (41.6%) expect them to be significantly higher than last year’s figures.

Of those who expect numbers to rise, the majority (61.5%) expect the increase to happen in October-December of this year. Three in ten (30.6%) think it will occur between January and March of 2021, while just 3.4% expected the increase to come between July and September of this year.

The predictions come alongside the news that the majority of respondents said their workload had not changed (40.9%) or had become lighter than normal (45.3%) between April and May 2020 as a result of the COVID-19 pandemic. Just under 10% (9.5%) said they were somewhat busier, while 2.2% said they were much busier.

Interestingly, more than a third (38%) of respondents said demand for personal insolvency advice and support had remained unchanged over the previous month (April-May 2020), while 46.7% said it had decreased.

Eleanor Temple, chair of R3 in Yorkshire and a barrister at Kings Chambers in Leeds, said: “The Government has introduced unprecedented levels of support for businesses and consumers since the start of the pandemic, and a number of financial services providers have also taken steps to help financially challenged consumers, for example through offering increased forbearance and payment holidays.

“This has meant that the number of people considering a personal insolvency process or asking for advice around one has not risen as sharply as we may have expected during circumstances like these.

“However, these support measures are temporary, and do not cover everybody. When they come to an end, a number of people are likely to find themselves in financial difficulty if their circumstances haven’t returned to what they were before the pandemic.

“With concern around future unemployment levels rising, and borrowing conditions returning to more usual patterns, it is vital for anyone in financial distress to seek out high-quality advice from a qualified provider. Our message to anyone whose budget is under pressure is not to wait until matters come to a head, as the sooner you get advice, the sooner you can start to get a grip on your financial situation.”

When asked to predict which debts or payments would be the most common immediate triggers for people seeking advice or insolvency solutions relating to their personal finances over the next 12 months, three quarters (74.2%) of respondents said personal debt related to business failure – suggesting that when the likely increase in corporate insolvencies hit, we are likely to see a related increase in personal insolvencies. Half (50%) said credit card debt was likely to be a trigger, and 35% said unsecured bank loans or overdrafts.

Eleanor says, “It’s not uncommon for a business insolvency to lead to an individual becoming insolvent, especially if the person in question has agreed to take on liability for a business’s debts via a personal guarantee as part of an attempt to turn it around.

“With businesses of all sizes facing difficulty as a result of the COVID pandemic, it isn’t surprising that members expect this to be a common trigger for personal insolvencies in future.

“Credit cards, loans and overdrafts are also frequent personal insolvency triggers – and are areas where banks, building societies and credit card providers have offered temporary support to consumers in the form of options like mortgage and debt repayment holidays, and interest-free overdrafts.

“These will have allowed people who have been affected by the pandemic some time to adjust, but they are only temporary, and their ending will mean people who haven’t returned to a pre-crisis financial position will struggle, which is why we expect more people to need help and support managing their finances.”

Respondents were also asked what steps the Government could take to help individuals cope with the impact of COVID-19 on their personal finances.

A third (33.3%) said an early introduction of the planned two month breathing space for personal debts, which although agreed by Government is still yet to be rolled out, would be the most useful.

Increasing the coverage of the COVID job retention scheme was seen as the ‘most useful’ option by 26.7% of respondents, while 15% of respondents said a moratorium on creditor enforcement action would be most useful.

Eleanor says: “Getting on with introducing the breathing space, due in early 2021, would have two major benefits. It would provide anyone who is unable to pay their debts with time to develop and agree a sustainable approach to managing them, and, hopefully, would also encourage more people to seek reliable, professional advice about their debts.

“A moratorium providing a breathing space for troubled businesses has just been introduced as part of the Corporate Insolvency and Governance Act, and the implementation of a scheme for individuals can’t come soon enough.”