2008-08-07 14:02:58 - Despite recent statistics showing a year-on-year fall in insolvencies, ThinkMoney.com anticipates they may rise as the slowing economy begins to affect more consumers.

Financial solutions company ThinkMoney.com anticipates a rise in the number of people experiencing debt problems in the coming months, despite a year-on-year fall in individual insolvencies.

A recent report from the Insolvency Service (www.insolvency.gov.uk) suggested that the number of people entering into IVAs in the second quarter of 2008 had fallen to 9,256, down from 10,561 a year previously - a

drop of 12.4%.

At the same time, bankruptcies had fallen from 16,214 in the second quarter of 2007 to 15,297 in the second quarter of 2008 - a fall of 5.7%.

Given the onset of the credit crunch in recent months, the statistics may come as a surprise to many. But Melanie Taylor, Head of Corporate Relations at ThinkMoney.com, said that the falls in both IVAs and bankruptcies should not be taken as a sign of long-term recovery. 'Most economists are predicting an economic downturn,' he says, 'which certainly doesn't raise hopes of the number of people in debt (www.thinkmoney.com/debt.asp) decreasing anytime soon.'

Other indicators, such as the Financial Services Authority's report that repossessions rose 40% in the first quarter of 2008 compared with the same time last year, do indicate a sharp rise in the number of people facing financial difficulties.

Ms Taylor suggested that this could be an early sign of things to come. 'As things stand, we would expect the number of people experiencing debt problems to increase fairly significantly, due to a combination of the credit crunch, rapidly growing costs of living and rising unemployment.

'These things take a while to ‘filter through' to the wider economy. Typically, lower-income families will be hit first, since they have less money to spend - but that then hits the companies where they usually spend money, so their staff are affected too. Eventually, most people are affected financially in some way.

'This in turn could lead to increasing numbers of people who can no longer manage their debts - and it's essential that these people get expert help as early as possible.'

But Ms Taylor was keen to emphasise that both IVAs and bankruptcy are valid ways of getting out of unmanageable debt. 'An IVA can be a great help to people with over £15,000 of debt,' he said. 'It allows a significant portion of their debts to be repaid in convenient monthly payments, usually for five years - after which the remaining debt is written off.'

He continued: 'There is something of a stigma surrounding bankruptcy, but in the right circumstances it may be the best possible way of making a fresh start.

'People who go through bankruptcy are subject to some restrictions - for example, they are highly unlikely to be able to borrow any more money for a number of years, and they will most probably be forced to sell any valuable assets they own. But once the bankruptcy process is complete, they will be legally debt free, and able to get on with their lives.'

About Think Money
Think Money (www.thinkmoney.com) are a financial solutions company based in Salford Quays, Manchester. The company specialises in a range of financial services, including mortgages, loans, debt help and advice (including debt management plans, IVAs, and debt consolidation).