The drop in personal insolvencies last year is another sign that the household debt situation in the UK could be improving. A debt advice organisation, CCCS, said this week that people seeking debt help in 2011 had lower levels of unsecured debts than in 2010 (although it also pointed out that people are struggling more as salaries fail to keep pace with inflation).
However, there are still many people going insolvent: far more than before the credit crunch. There is more than one way to go insolvent in England and Wales, so here's a summary of ways to go insolvent, provided by insolvency specialists Freeman Jones Ltd.
Insolvency options in England and Wales
Bankruptcy is the insolvency option that most people have heard of. It could involve selling assets (including your home) so you can pay your lenders as much as you can afford, although it's usually over after one year. You might also have to make a contribution for three years.
An Individual Voluntary Arrangement (IVA) is a more recently introduced way to go insolvent. An IVA can help people to stay in their home, although they may well be asked to release equity (if they're a homeowner) - and they'll typically have to repay as much of their unsecured debts as possible over five years. It's a formal agreement between the borrower and their unsecured lenders that would have to be arranged by an Insolvency Practitioner (IP), an insolvency specialist.
Then there's the Debt Relief Order (DRO). This form of insolvency can help people write off debts they cannot afford (under £15,000) if they have limited assets and a limited income.
If you did go insolvent, it would have a substantial effect on your credit rating, making it more difficult to apply for credit for six years. In the case of bankruptcy, you would also have trouble entering certain professions in the future. In any event, speak to a debt specialist about your options before making any final decision about applying for insolvency.
Analysis of the insolvency figures
In 2011, 29% fewer people went bankrupt than in 2010.
2011 was also the first year that more people who needed debt help entered an Individual Voluntary Arrangement than went bankrupt: there were 41,845 bankruptcies in 2011, compared with 49,056 IVAs, even though the number of people entering an IVA actually fell by 3.2% on the previous year.
While it's encouraging that fewer people are going insolvent, insolvency will still be the best option for many people with serious debt problems - and concerns have been raised by debt advisers that people with debt problems often don't consider seeking debt help even if they're very worried. If you're worried about your own debts, speaking to a debt specialist sooner, rather than later, could make a big difference to the way it works out.