4th August, 2006



Figures from the government are expected to show a record number of people declared themselves bankrupt this spring.

Financial services group KPMG predicts the number of people who went into insolvency in England and Wales between April and June rocketed to 27,000.

That is the highest figure ever and well above the 15,645 in the same period last year and the 23,351 who went through the courts between January and March this year.

And KPMG believes the total number of people going bankrupt in 2006 will exceed 100,000 for the first time - the equivalent of one every minute of the working day.

The figures from the Insolvency Service come a day after the Bank of England raised interest rates for the first time for two years - leaving millions of homeowners facing higher mortgage repayments.

And they come in a week when the major high street banks reported soaring levels of bad debts in the UK as Britons struggle to pay off credit card bills and loans.

HSBC said bad debts at its UK retail banking arm rose from ?265 million to ?361 million in the first six months of the year while Lloyds TSB raised its provision for bad debts by 16 per cent to ?632 million.

Halifax and Bank of Scotland owner HBOS saw a 26 per cent rise to ?592 million and Barclays said bad debts at Barclaycard, which has 11.2 million UK customers, surged 37 per cent to ?696 million in the first half.

Analysts blamed the soaring levels of bad debts and bankruptcies on a hangover from borrowing binges at the beginning of the decade.

It has seen consumers accumulate more than a trillion pounds of debt through mortgages, loans, credit cards and overdrafts.

Much of the credit boom has been pinned on a combination of low interest rates which have made debt cheap and high employment levels and housing costs which have added to consumer confidence.

But analysts also point to a change in bankruptcy laws in 2004 which reduced the amount of time it takes to be discharged from three years to one year.

The Enterprise Act was designed to encourage entrepreneurship by removing the stigma of bankruptcy but critics claim it has encouraged more people to run up debts and avoid paying them off by declaring themselves bankrupt.

And there has been a large increase in the number of individual voluntary arrangements (IVAs) - under which people agree to repay a set amount each month in exchange for having their debts frozen.

KPMG said of the thousands who entered IVAs in the last three months, around 800 did so with more than ?100,000 of unsecured loans.

If you are struggling with debts such as credit cards, store cards and unsecured personal loans if may be worthwhile considering consolidating all of these debts into one secured debt consolidation homeowner loan. This should reduce your monthly outgoings and reduce the level of interest.

However, for this option to work it is important to be disciplined enough not to build up any more debts i.e. cut those credit and store cards up and don't be tempted to use them again. Evidence suggests that many people start using their cards again once the balances have been cleared.

Additionally, many feel they are unable to obtain a secured loan for several reasons such as those with bad credit, ccjs, arrears and those with no proof of income (e.g. self employed loans) However, a homeowner loan can be obtained from sub prime lenders or brokers who are able to source such loans. This would be of enormous benefit to those struggling with debt and high interest payments.