Just under half (45%) of adults across the region believe the ‘social stigma’ attached to entering an insolvency procedure has fallen over the last decade, according to new research by insolvency trade body R3 and ComRes.Exactly half (50%) of those surveyed across the North East, Yorkshire and Humberside as part of R3’s regular Personal Debt Snapshot believe there is a stigma attached to entering an insolvency procedure, compared to just 14% who do not think there is.
And while around a third (34%) feel that entering insolvency is an easy way out of debt, only a quarter (25%) say they have a good understanding of what happens when an individual enters into an insolvency procedure, compared to 39% who say they do not.
The North East has the highest rate for personal insolvency of any region in England and Wales, with four of the 20 worst-affected parliamentary constituencies – Washington & Sunderland West, Gateshead, Easington and Wansbeck – being found in the region.
Allan Kelly, chair of R3 in the North East and a partner with RSM, says: “The idea of ‘stigma’ around entering an insolvency procedure is one of the barriers to people dealing with problem debt, and it’s very welcome that there is an increasingly non-judgmental attitude to people entering an insolvency procedure.
“The perceived fall in stigma is probably linked to the big rise in consumer debt and personal insolvencies since the turn of the century. An explosion of consumer debt levels led to more insolvencies, which helped make the idea of entering insolvency less unusual, and this in turn might have made people more likely to use an insolvency procedure to deal with unmanageable debts.
“Given that the North East has the UK’s highest rates of personal insolvency, the fact that insolvency is not better understood is a real concern and there needs to be an improvement in financial education in order to address this issue.
“It’s frustrating when people avoid entering insolvency based on a misconception of what’s involved – we need to work to break down artificial barriers, like misunderstandings, that stop people from getting the right advice and the right solution for their situation.”
Only 33% of adults in the North East, Yorkshire and Humberside agree that someone’s insolvency is likely to be down to their own reckless spending rather than a factor outside of their control, while 50% agree that entering an insolvency procedure can be an opportunity for a fresh start.
In 2000, there were 29,000 personal insolvencies in the UK, or 7.2 for every 10,000 adults, but in 2014, there were 98,000 personal insolvencies, or 21.8 for every 10,000 adults.
Allan Kelly continues: “The fact that there is less stigma around insolvency shouldn’t encourage people to rack up debt – it just means there are fewer barriers to dealing with problem debt when it does occur.
“The insolvency regime is there to provide a balance between creditors and those in debt. On the one hand it provides debt relief to those who are struggling, while on the other, it helps creditors see more of their money back than they otherwise would have done, and there are sanctions for those who have recklessly accumulated debt too.
“People can end up with unmanageable debts for all sorts of reasons. What’s more important is that people with problem debt seek advice early to find a solution to their problems as quickly as possible, so they have the best possible chance of finding the right way forward for themselves and their creditors.”