Personal Bankruptcy In the Recession

According to Tory leader David Cameron, many more people have hit the skids in this recession than in any other that this country has endured. How true is what he is saying and what role do laws governing bankruptcy in this country have to play in this?

There now seems to be no doubt that Britain is in the longest recession since the war. There are many who claim that it is getting worse. During the boom before the credit crunch many people and businesses had gone on an unprecedented borrowing rampage. The result is that many more people than ever before have gone bust.

These figures are slightly skewed though by changes to the way people go ‘bust’ these days. In the past you really only had one option and that was to declare bankruptcy. This was a fairly harsh way of dealing with insolvency with assets such as cars and homes being seized to pay off debits. These days people have other, less onerous, options and the result seems to be a higher uptake rate.

IVA or individual voluntary arrangements are a type of bankrupt lite. They allow people, in most cases, to keep things like their houses. In the current recession IVAs made up more than a third of the total number of insolvencies. There have been 64,733 IVAs over the 18 months from March 2008.

There seems to be little doubt that this figure reflects a high number of people reaching personal insolvency. However, the fact that they now have an option that does not ‘ruin’ their lives and brand them forever, undoubtedly allows more people to come forward.

On balance it seems that Cameron’s claims may be a little simplistic. It is not just that many people are getting into trouble that accounts for the high rate of insolvency, the fact that help is at hand has people more willing to try and sort their financial woes out.