UK 'debt crisis' worsens as 100,000 go bust » Bill Payments » 24dash.com

More than 100,000 people went bust in England and Wales during 2006 in the worst ever year for Britain's "debt crisis".

The Insolvency Service said a total of 107,288 people went insolvent during the year.

In the autumn months alone, a record 29,804 went bust, up 44.1% on the same period in 2005.

Today's figures showed that 17,063 people went bankrupt between October and December - up almost 10% on the summer, while 12,741 opted for an Individual Voluntary Arrangement (IVA).

Despite a quarter-on-quarter increase of 3.9% in IVAs, today's statistics revealed a reversal of a trend that had seen IVAs closing the gap on bankruptcy figures.

The slowdown in growth of IVAs is seen largely as a result of tougher demands from banks and pressure on debt management firms to "clean up their act" amid allegations of over-selling.

Recent figures from IVA specialists show that lenders are becoming less willing to accept an agreement, with approval rates dropping from 92% to 78% towards the end of the 2006.

Rather than drive down the overall number of insolvencies, today's figures indicated that it has pushed indebted consumers to go down the path of bankruptcy.

Pat Boyden, personal insolvency partner at PricewaterhouseCoopers, said this could be bad news for banks.

He said: "If IVAs are flat, the threat must be that creditors are being too tough on IVAs, forcing people to switch to bankruptcy.

"This could be worrying for banks and credit card companies because the return on bankruptcy is minimal."

The trend will, however, be welcomed by those who have warned that too many people are being pushed down the IVA route by aggressive marketing tactics when bankruptcy would have been a better option.

The overall insolvency figure for 2006 is likely to reignite fears that people are increasingly overstretching themselves financially.

Stephen Rose, director of Debt Advice Bureau said many more people could be pushed over the brink this year in the face of increased household costs and real price inflation.

He added: "The insolvency trend is continuing ever upwards. It underscores the over-indebtedness of many households and the difficulty they have in keeping up with rising repayments."

Despite 2006 showing record numbers of insolvencies, things are going to get worse before they get better, experts warned.

Steve Treharne, head of personal insolvency at KPMG, believes the figure for 2007 could be as high as 130,000.

But it could be that the high figures being seen at present are an overhang from years gone by, with consumers paying the price now for chronic overspending in the first half of the decade.

Experts are predicting that, looking further ahead, the rate of increase will slow, with insolvency levels reaching a plateau of around 2006/2007 figures.

Liberal Democrat Treasury spokesman Vince Cable said: "This staggering increase in personal insolvencies, alongside the equally dramatic rise in home repossessions, demonstrates the severity of Britain's personal debt crisis.

"These are not freak figures. Sadly, they will deteriorate further once the recent increases in interest rates kick in, tipping even more people over the edge.

"We have warned the Chancellor for years about the seriousness of the personal debt problem and the need for a concerted plan of action involving better financial advice and education, debt data pooling and action on irresponsible lending.

"Although negotiated insolvency agreements can lead to abuse when carried through by some of the cowboys in the industry, voluntary agreements by insolvency practitioners are one way of protecting homes. We must be careful about the pressures from the banks to kill off this activity just because they're not getting a big enough cut."

Copyright Press Association 2007.