Consumer debt crisis shifting from unsecured borrowing to arrears in priority bills
While official figures are showing an overall decrease in insolvency, forecasts from other influential bodies suggest that the consumer debt crisis maybe shifting from unsecured borrowing to arrears in priority bills.
Recent figures released by Accounts In Bankruptcy (AiB) who administer insolvency in Scotland have shown a decrease in the total number of cases compared to the previous financial year.
AiB revealed that the total number of bankruptcies, Protected Trust Deeds (PTD) and DAS in 2014-15 is down 16.7 per cent from 2013-14. Total personal insolvencies, which include both bankruptcies and PTDs are currently at their lowest levels in ten years.
This week the Insolvency Service published its Q1 2015 Insolvency Statistics which showed overall falls for individual insolvencies compared to the same period last year.
The data pointed to bankruptcy orders continuing to decline. Though the service point to the introduction of Debt Relief Orders (DROs) in 2009 as a reason behind this. The number of DROs decreased for the third quarter in a row. Q1 of 2015 showed a fall of 5.1% compared to Q1 of 2014.
Provisional figures on Individual Voluntary Arrangements (IVAs) also indicated continuing falls. There were 10,405 IVAs in Q1 of 2015, which was a 13.1% decrease compared to Q4 2014 and 23.5% lower than Q1 in 2014.
From October 2015 creditors will find it tougher to force someone in to Bankruptcy. The current threshold of £750 is set to rise to £5,000. In addition the amount of debt covered for Debt Relief Orders, geared towards individuals who hold little or no assets, will also rise from £15,000 to £20,000. See New Bankruptcy and DRO thresholds for details.
Even with these insolvency figures in mind there are some statistics that contradict the fall in personal insolvency and state of individual finances. In a report from StepChange the demand for debt advice, through calls and website traffic, has increased 56% since 2012. The worrying statistic here is that debts to banks and credit cards are decreasing as utilities and council tax arrears increase.
“Although the average amount our clients owe to consumer credit providers – such as banks and credit card companies – continues to fall, as it has for several years, there is a growing crisis facing families seeking to pay their priority bills. For example, in 2010, gas and electricity arrears were 3.8% of the average unsecured consumer credit debt, by 2014 it was 7.8%. Two in five of our clients have arrears on priority bills; and over a quarter have arrears on council tax, mortgage, and rent.”
Mike O’Connor, Chief Executive, StepChange
In February Citizens Advice Bureau reported an expected a 20% increase in council debt issues compared to the 2013/14 period. The Money Charity’s April statistics show that on average, a UK household spends £2.91 a day on water, electricity and gas. Equivalent to over £87 per month.
So, whilst the conventional thoughts on debts stemming from credit and over commitment may be decreasing the priority payments which every house has to contend with are seemingly cause for potential financial burdens regardless of the current stats on insolvency.