Pent up demand skewing personal insolvency market – comments

Commenting on the outlook for the UK insolvency market following the publication of the Insolvency Service’s Q1 2021 statistics today, David Heathcote, Insolvency Director at TDX Group, an Equifax company, says the quarterly decline in IVAs is unsurprising but furlough and forbearance leave pent up demand ahead: “The expected reduction in Individual Voluntary Arrangements (IVAs) during Q1 2021 has been driven by very low volumes in January in particular. Pre-pandemic, IVAs and trust deeds were experiencing record volumes, but unprecedented COVID-19 related financial support has reversed this pattern, skewing the market and also pushing bankruptcy and debt relief order (DRO) volumes significantly lower.

“While this seems to paint a positive picture, a more concerning trend of financial difficulty is brewing. A rising proportion of new IVAs and trust deeds since May 2020 have been for consumers where benefits make up over half of their income, but these arrangements will be resilient to the economic challenges created by COVID-19. However, financially vulnerable people currently availing of payment holidays or the furlough scheme are a different story. Once these are withdrawn, pent up demand will be released as individuals who would’ve otherwise been in unsustainable financial circumstances due to the pandemic resort to insolvency.

“As lockdown restrictions end and forbearance winds down, it’s vital government, creditors and the insolvency industry all work together to prepare for the upsurge in demand, mitigating the impact on consumers as best as possible.

“Despite this, there are regulatory bright spots on the horizon. The latest guidance on marketing debt advice and enhanced regulator monitoring may increase trust in the sector if companies not meeting basic standards exit altogether. Meanwhile, the introduction of Breathing Space next month will also buy time for customers and debt advisers to create more tailored solutions that best suit their needs – a welcome buffer at a time of great need that should only lead to fairer outcomes for both consumers and businesses.”