More than two-fifths of debt experts questioned by insolvency and restructuring trade body R3 believe that personal insolvency numbers will increase ‘significantly’ in the next 12 months.

Over 8 in 10 respondents to an R3 survey of its members who work in personal insolvency said they expected the numbers of cases to increase within the next 12 months, with 41.6% of survey respondents expecting them to be “significantly” higher than last year’s figures.

A further 44.5% expect personal insolvency numbers to be “somewhat” higher than 2019, while three quarters (74.2%) of respondents say that personal debt relating to business failure is likely to be the most common trigger for personal insolvencies arising.

Half (50%) said credit card debt was likely to be a trigger, while 35% highlighted unsecured bank loans or overdrafts.

Of those who expect personal insolvency numbers to rise, almost two-thirds (61.5%) expect the increase to happen in the final quarter of this year, with a further three in ten (30.6%) thinking it will occur in the first three months of 2021.

North East England has been at the top of the official Insolvency Service table for personal insolvency rates for each of the last 11 years, with the most recent annual figures showing there were 33.2 individual insolvencies per 10,000 people in the region, a number which represented a sharp increase on the previous year.

Alexandra Withers, North East chair of R3 and an associate solicitor in the insolvency department of Short Richardson & Forth Solicitors in Newcastle, says: “The Government has introduced unprecedented levels of support for businesses and consumers since the start of the pandemic, and a number of financial services providers have also taken steps to help financially challenged consumers, for example through offering increased forbearance and payment holidays.

“This has meant that the number of people considering a personal insolvency process or asking for advice around one has not risen as sharply as we may have expected during circumstances like these.

“However, these support measures are temporary, and do not cover everybody. When they come to an end, a number of people are likely to find themselves in financial difficulty if their budgets have taken a hit due to the pandemic.”

R3 members were also asked what steps the Government could take to help individuals cope with the impact of the pandemic on their personal finances, with a third (33.3%) saying an early introduction of the planned two-month breathing space for personal debts, which is due to be rolled out in May 2021, would be the most useful.

Increasing the coverage of the COVID job retention scheme was seen as the ‘most useful’ option by 26.7% of respondents, while 15% of respondents said a moratorium on creditor enforcement action would be most useful.

Alexandra Withers continues: “It’s not uncommon for a business insolvency to lead to an individual becoming insolvent, especially if the person in question has agreed to take on liability for a business’s debts via a personal guarantee as part of an attempt to turn it around.

“There’s also the impact of redundancies of those working for businesses that become insolvent, and while the government’s support measures are enabling many firms to continue trading at the moment, we’re already seeing an increase in redundancy numbers that’s sadly only likely to get worse as the furlough and CBILS schemes come to an end.

“With businesses of all sizes facing difficulty as a result of the COVID pandemic, it isn’t surprising that members expect this to be a common trigger for personal insolvencies in future.

“With concern around future unemployment levels rising, and borrowing conditions returning to more usual patterns, it is vital for anyone in financial distress to seek out high-quality advice from a qualified provider.

“Getting on with introducing the breathing space would provide anyone who is unable to pay their debts with time to develop and agree a sustainable approach to managing them, and would hopefully also encourage more people to seek reliable, professional advice about their debts.

“Our message to anyone whose budget is under pressure is not to wait until matters come to a head, as the sooner you get advice, the sooner you can start to get a grip on your financial situation.”