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More than six million households are financially vulnerable

Recent figures and reports paint an inconclusive, but ultimately dissatisfying picture of the state of personal debt in the UK. When the Insolvency Service issued their latest bankruptcy statistics, first reactions were ecstatic. According to the organisation, bankruptcies had encouragingly fallen to a six-year low, seemingly suggesting that a more cautious approach by the banks and, possibly, more prudent spending patterns by consumers, were showing effect. And yet, anyone looking at the details quickly discovered that this drop came at a price. For rather than pointing at a more healthy financial situation, the reduced bankruptcy-figures had been „compensated“ for by a considerable increase in alternative procedures like individual voluntary arrangements and debt relief orders. Factoring these in, there were 135,089 individual insolvencies in England Wales alone in 2010 – a record high.

Although numbers for the first quarter of 2011 appear to indicate a more favourable trend, a current report titled ‘Debt and Household Income’ suggests that scepticism rather than relief is still in place. Basing itself on research conducted by the Financial Service Authority, the report arrives at worrying conclusions with regards to the overall debt level in the UK. According to the authors, a staggering “6.2 million households are ‘financially vulnerable’ – 3.2 million are ‘already in financial difficulty’ either in structural arrears or are already subject to some form of debt action, with a further three million ‘at risk’ of getting into financial difficulty because they are finding it hard to make ends meet and are vulnerable to increases in household bills“. Alarmingly, those with the lowest payrolls also tended to have the highest ratio of debt to income, meaning that there is rarely any money left at the end of the month for them to pay off any arrears.

As the Debt Advisory Line’s Craig Gedey emphasised, the downward trend in bankruptcies and the findings of the report did not necessarily represent a contradiction. Instead, what these numbers indicated, was on the one hand, a more complex picture in the structure of individual insolvencies, which could range from a complete inability to pay off debts to a mere need to restructure one’s finances. The fact that more and more people were making use of bankruptcy alternatives like IVAs or DROs also pointed to the efficacy of these measures, which, in itself, was to be welcomed.

On the other hand, the most essential step consisted in closely watching the underlying psychology behind the official statistics. According to Gedey, “what we need aren’t yet more reports and statistics or officially sanctioned alternatives to bankruptcy. What is required is a shift in awareness capable of avoiding and driving down personal debt in the first place. As one of the UK’s leading debt management companies, we recognise our responsibility in this process by providing our customers with the information and advice they need.“