Record number of insolvencies

A record number of people have been declared insolvent as the credit crisis marks its second anniversary, new figures showed on Friday.

A total of 33,073 people were declared insolvent during the three months to the end of June, 27.4 per cent more than during the same period a year earlier, according to the Insolvency Service.

It means numbers are now at their highest level since records began in 1960 and experts forecast there is worse to come as unemployment rises and people are unable to pay their bills.

At the same time, the number of companies that collapsed rose by 39.1 per cent year-on-year to 5,055 in the three months to the end of June.

Alan Tomlinson, of insolvency practitioners Tomlinsons, described the combination of rising unemployment and unmanageable debt as “the perfect storm”.

“Many of the people we’re seeing are in serious, serious difficulty,” he said.

“The sharp rise in the number of individual insolvencies is a reflection of the ongoing fallout from irresponsible borrowing in the good years and people living beyond, in many cases way beyond, their means.”

The individual insolvencies consisted of 18,870 bankruptcies – which were up 15.3 per cent on the same period a year ago and 12,225 of its less stringent form, Individual Voluntary Arrangements (IVAs) – which were up 27.4 per cent on the same period in 2008.

An IVA is an arrangement that is entered into with those owed money, while a bankruptcy involves a formal court order where assets are sold to pay creditors.

An alternative to bankruptcy – a debt relief order – was introduced in April, but various restrictions limit those who can apply, such as not owning your own home and having debts of less than £15,000.

Anthony Cork, of accountants Wilkins Kennedy, said: “Pressure from the Government has meant that a lot of banks have been holding off on foreclosing on individuals and restructuring businesses that they have lent to. However, this political pressure is on the wane and intervention led by lenders is expected to accelerate in the autumn.”