Bankruptcies in Britain Take A Drop

According to the Insolvency Service, which provides a legal and regulatory framework for dealing with financial failure and misconduct, the number of bankruptcy orders in the UK fell to 8,088 in the second quarter of 2012. This represented a fall of 27.1 per cent compared with the same period in 2011 and took the number of bankruptcies to its lowest level since 2003. For advice on bankruptcy, go to debt free direct now at


The number of bankruptcies may have fallen, but the consensus among insolvency professionals appears to be that the situation is much worse than the official figures suggest. An estimated six million households in the UK are struggling with debt as household budgets suffer from an ailing economy, high living costs and rising unemployment. Many of these households are teetering on the brink of insolvency and unforeseen circumstances, such as an unexpected bills, reduced working hours or redundancy can push them over the edge.

 Debt Relief Order (DRO)

The number of debt relief orders, which were introduced in 2009 as an alternative to bankruptcy for debtors with relatively small debts and few assets, increased to 7,956 in the second quarter. This represented an increase of 9.6 per cent on the same period in 2011 and brought the number of debt relief orders up to a similar level as bankruptcies for the first time.

Individual Voluntary Agreement (IVA)

On a slightly more positive note, the number of individual voluntary arrangements also fell by 6.6 per cent to 11,346 in the second quarter of 2012. Nevertheless, the number of bankruptcies in the UK has been lower than the number of individual voluntary arrangements for over a year. The Individual Voluntary Agreement was introduced as part of the Insolvency Act 1986 as an alternative to bankruptcy for debtors with unsecured debts of £10,000 or more.

Essentially, an IVA is a legally binding agreement, whereby a debtor repays his or her creditors reduced payments, typically for five or six years. During this period, the debtor is protected from bankruptcy or any other legal action on the part of his or her creditors, provided that he or she keeps to the terms of the IVA. Upon completion of the term, any unpaid debt is written off. IVAs are available in England, Wales and Northern Ireland, while a similar agreement, known as a Scottish Protected Trust Deed, is available in Scotland.

Economic Outlook

The economic outlook for the UK remains uncertain. In August 2012, the quarterly inflation report from the Bank of England forecast zero per cent growth in economic output for 2012, down from 0.8 per cent in May 2012 and 2 per cent a year previously. The Governor of the Bank of England, Sir Mervyn King, did, however, predict modest annual economic growth of 2.5 per cent thereafter. He also said that the UK would once again see economic growth rates similar to those before the credit crisis, but it would take time to achieve this. The previous month, the International Monetary Fund (IMF) warned that economic recovery in the UK had stalled, confidence was weak and uncertainty high.

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