In August 2014 I blogged about how female insolvencies were on the increase following figures released by the Insolvency Service for the previous year, and I looked at whether the celebrity culture was to blame. In particular, there were many more younger women than younger men entering formal insolvency procedures.

insolvency-rate-by-genderThe Insolvency Service has recently released figures for 2014 which show that for the first time the overall individual insolvency rate per 10,000 adults in 2014 was higher for females (22.2) than males (21.2). Interestingly, these numbers are particularly stark among young adults aged between 25 and 34 with 32.8 per 10,000 women within that age range becoming insolvent, compared to just 24.8 for men of the same age. Overall, the only age range where the insolvency rate was higher for males than females over 55.

There have been many contrasting explanations on the internet as to why more females than males have been entering into formal insolvency procedures and I have seen articles stating that more females than males are entering bankruptcy, which is simply untrue: Insolvency does not always mean bankruptcy. First you need to understand that insolvency procedures include voluntary arrangements and debt relief orders as well as bankruptcy and that although every insolvency has its own, sometimes tragic, story, they can broadly be put into two categories: business debt and personal debt.

insolvency rate by age groupThe Insolvency Service statistics show under the age of 55, almost twice as many females than males took advantage of Debt Relief Orders (DROs) which were introduced in 2009 to help deal with low value debts. With DROs, the debtor is usually discharged from their debts after 12 months and creditors cannot recover their money without the court’s permission. Does that sound familiar? A DRO could be described as a “mini-bankruptcy” but it only applies if the debtor owes less than £20,000, have little spare income and does not own their home. Therefore a DRO, which is not a court procedure, could be seen as a convenient “get out of debt” card (some would say “too convenient”) making it particularly attractive to younger people who may have bought a whole wardrobe on credit cards but not bought their own home yet.

The insolvency trade body R3 conducted research among its members (insolvency practitioners) of which, 85% say that consumer debt issues are a major cause of insolvencies for females, while only 75% say the same for men. On the other hand 83% of insolvency practitioners say the failure of someone’s own company is a leading cause of insolvency for men, compared to the 32% who say that for women.” Therefore, much of the blame for female insolvencies seems to be ‘shopping addiction’. After all it is all too clear that women are the advertisers’ target market – the country’s biggest shoppers . But why financial ruin?

There may be a strangely positive twist on why more women are becoming insolvent.  The president of R3, Phillip Sykes, stated that it was possible that “women are less likely to stick their head in the sand about debt problems”. Therefore, rather than delaying the inevitable they get on and enter into a formal insolvency process”. In the last five years, the numbers of women entering Individual Voluntary Arrangements, which are linked to consumer debts, have risen while they have fallen for their male counterparts.

It’s easy to see how credit card debt can soon spiral out of control – which shows that those who have put £3,000 on plastic and only repay the minimum monthly amount would take 27 years and 4 months to clear the balance – costing £4,000 in interest. Therefore it has become so much easier for people to get heavily into debt as credit card companies fight for new customers with eye-catching offers and as a result, those taking advantage don’t feel like they’re spending real money.

If you or your business need any advice on any of the above or cash flow problems please call the Francis Clark Business Recovery team who can help on 01392 667000 to arrange a free, no obligation, initial meeting.

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