The local injustice of bankruptcy: geographical variation in access to debt relief in England

Abstract

Personal insolvency law offers a vital safety net for individuals in financial difficulty. Nonetheless, disparities arise in access to the benefits of debt relief offered by insolvency law. In a context of geographical inequality and local gaps in access to justice, our original empirical study explores the substantial variation in personal insolvency rates across English local authority districts (LADs) – both in terms of total personal insolvencies, and of the proportion of insolvencies composed of longer-term, expensive repayment plans (individual voluntary arrangements (IVAs)) compared to rapid debt discharge procedures (bankruptcy and debt relief orders). Our model explains much of the local variation in total insolvencies and finds higher insolvency rates in LADs with lower median income levels. Crucially, however, economic variables do not explain local variation in the proportion of insolvencies composed of IVAs. Despite IVAs being designed for higher-income ‘can pay’ debtors, the IVA proportion is higher in LADs with lower median income levels. These findings imply that IVAs are not ‘rationally sorted’ based on economic conditions and add important evidence to the case for reforming personal insolvency law to address apparent inefficiencies and unfairness.