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Last Updated: Friday, 3 August 2007, 09:20 GMT 10:20 UK
Number going bust in slight fall
Despairing woman
People are feeling the strain of higher interest rates
The number of people becoming insolvent in England and Wales has shown a surprising fall, official figures show.

Between April and June 26,956 people became insolvent - a drop of 8.1% on the previous three months, but a rise of 4.2% on the same time last year.

Experts say the fall may be due to lenders becoming less keen to accept Individual Voluntary Arrangements (IVAs), a type of insolvency.

In total, the number of IVAs fell 15% between the first and second quarters.

Into reverse

Overall, 16,258 people became bankrupt between April and June, down 2.9% on the previous three months.

HOW TO GO INSOLVENT
Bankruptcy: the traditional way of escaping overwhelming debt. Ends after one year, but you are likely to lose all your assets including your house to pay something to the creditors
IVA: A deal between you and your creditors, overseen by an insolvency practitioner. Less stigma, less chance of losing your home, but involves paying some of your debts in one go or over a number of years

There were 10,698 IVAs in the second quarter of 2007, compared to 12,597 during the previous three months.

The number of IVAs is down year-on-year by 0.7%.

Over the past year, a huge increase in IVAs, a type of insolvency, has boosted the figures but this has now gone into reverse as lenders become more reluctant to accept them.

"Lenders have hardened their attitude to IVAs," Pat Boyden, an insolvency specialist at PriceWaterhouseCoopers told BBC News.

"In recent times lenders have been suspicious that some IVA providers, through high profile advertising, have been encouraging people to enter into IVAs who need not do.

"However IVAs serve a purpose, they ensure that the lender gets around 25 pence in the pound of the money owed back - compared to a few pence in the pound in bankruptcy," Mr Boyden added.

Repossessions

Despite the slight fall in bankruptcies and sharper fall in IVAs, the number of people going bust is still historically high.

Five interest rate rises over the past year have added to the pressure on people's finances.

On Friday, the Council of Mortgage Lenders (CML) announced that repossessions had risen 18% in the first half of the year.

Year-on-year, repossessions have risen by nearly 30%.

But mortgage repossessions are nowhere near the highs of the early 1990s.




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