Bankruptcies reach record low in Q4 2021

The number of individuals entering bankruptcy was the lowest since Q4 1987 with only 1,824 bankruptcies occurring in the quarter.

This is the seventh quarter to be wholly affected by the pandemic and associated national measures, and whilst IVA numbers for the quarter remained comparable with the previous quarter, they again exceeded the immediate pre-pandemic quarterly average for the sixth quarter in the last seven.

The seasonally adjusted figures, released by the Insolvency Service today, reveal that there were 27,349 individuals entering either bankruptcy (1,824) a debt relief order or DRO (5,863) or an individual voluntary arrangement or IVA (19,662) in the fourth quarter (Q4) of 2021.

Andy Nalliah, Personal Insolvency Partner at RSM UK said: ‘For the second quarter in a row we have seen record breaking lows in the volume of bankruptcies in a quarter, with the Insolvency Service reporting a 7% quarter on quarter decrease. The 1,824 bankruptcies in the quarter represents the least number of bankruptcies in one quarter since Q4 1987. Furthermore, and just as significantly, the 1,824 bankruptcies in the quarter also represent a 40% drop on the same quarter last year.

‘Of the 1,824 bankruptcies in the quarter, the Insolvency Service report that only 14% have arisen because of creditor petitions. Moving forward into 2022, I would expect to see the number of bankruptcies and the percentage of those arising from creditor petitions begin to increase as creditors reassess their options, their priorities and their attitudes to credit and cash recovery.

‘DRO numbers have risen quarter on quarter yet again and were 38% up on the same quarter last year. However, DRO registration numbers of 5,863 remains some 15% down on the same quarter in 2019. Given the increasing of the DRO eligibility thresholds last summer, I would expect DRO registrations to continue to rise and potentially exceed the rolling ten-quarter pre-pandemic average of 6,835 quarterly registrations.

‘IVA registrations for the quarter of 19,662 were slightly below the quarterly average for the year however, for the sixth quarter in the last seven, IVA registrations exceeded the immediate pre-pandemic quarterly average. IVA numbers continue to suggest that despite ongoing concerns for many over the security of long-term employment and rising inflation rates significantly impacting the cost of living, individuals remain proactive in addressing their financial situations and pre-empting creditor pressure; most likely as a means to maintain personal control and avoid bankruptcy.

‘Although personal insolvency numbers as regards bankruptcies and DROs have significantly reduced due to the ongoing affects and limitations of the pandemic, the impact of Breathing Space on personal insolvency numbers remain uncertain. The Breathing Space scheme was launched in May 2021 and provides a two-month grace period to protect debtors from enforcement action and from interest and penalties accruing. The Insolvency Service have reported 13,895 Breathing Space registrations in the quarter. Although only 2% of this number, representing some 275 cases, are recorded as mental health breathing space registrations, whether registrations are precautionary or a precursor to a formal insolvency procedure remains unknown.’