Debt woes force more into bankruptcy

The number of people becoming insolvent will reach record levels when official figures are published next Friday. For the first time, the number of personal insolvencies will top 30,000 for a quarter. In fact, there have been 41,870 personal bankruptcies this year – which works out at one person every six minutes. 22,976 people have entered into an individual voluntary agreement (IVA) since the beginning of the year – that's five people every hour.

Insolvencies – made up of bankruptcies, IVAs and debt-relief orders – could top 125,000 for the year, according to insolvency experts Tenon Recovery, which is almost double what they stood at just four years ago. The number of people who saw their financial situation collapse in 2005 was 66,646. The figure had soared to 106,348 by last year and will leap again in 2009, says Carl Jackson, national head of Tenon Recovery.

"The figures for the first quarter of 2009 showed record highs of personal insolvencies, and it is likely this will again be the case when the latest statistics are announced," Jackson says.

When workers are made redundant, there is normally a six- to 12-month time lag between their losing their jobs and falling behind with debt repayments, and eventually going into insolvency. It means even if the economy improves, the number of people being declared insolvent could go on rising for some time to come.

Worryingly, the number of younger people – between 18 and 24 – becoming insolvent has increased by 50 per cent over the past 12 months. "The rise in bankruptcies within younger age groups is particularly concerning and reflects the vulnerability of this generation as a result of their youthful recklessness and lack of education in managing their finances," Jackson says.

Next week's figures from the Government's Insolvency Service will include debt-relief orders (DROs) – a new halfway stage to bankruptcy – for the first time. Some 2,444 people have applied for a DRO since they were introduced in April, which works out at 25 people per day. However, there has been a rise of 25 per cent in the number of people entering into a DRO in the past four weeks compared with the four weeks previous, says Jackson.

"They are proving popular with those struggling with severe burdens and we are likely to see increasing numbers of people making use of these to address their financial issues," he says.

But insolvency can be avoided. Careful budgeting and sensible spending can be the difference between keeping or losing control of finances. There are a number of organisations that can help people who are facing severe financial problems, but a key part to getting help is admitting you have a problem.

But almost half of those in serious debt are too scared to take action because of the social stigma attached to it, according to research published this week by talkaboutdebt.co.uk. People are worried about the reaction of loved ones, which means they don't talk to them about their problems. The longer they delay doing so, the further into trouble they get.

Andrew Redmond, an insolvency expert, says: "It's enormously hard to face up to a debt problem, and sometimes even harder to share that problem with loved ones. Often, people delay dealing with the problem – hoping for a financial windfall which doesn't come. Sharing a debt problem with a trained adviser can be the first step in solving that problem."

According to talkaboutdebt.co.uk's research, the average debt among people experiencing bankruptcy, a debt-management plan or an IVA is £25,115, although about one in 10 has debts higher than £60,000. Nearly a quarter have no idea how long it will take them to pay their debts off.

Women are even more affected by the pressure of serious debt than men, with three-quarters saying they are not sleeping because of the related stress, compared with three out of five men. But taking that first step is easy, and needn't cost a penny. There are many experienced debt experts who will advise you for free – the key is to contact them before you sink into debt that you can't control.

You can get free advice at your local Citizens Advice Bureau, for instance, or from the Consumer Credit Counselling Service on 0800 138 1111 or the National Debtline on 0808 808 4000.

In the black: How to avoid insolvency

Tenon Recovery gives its top tips

* Get a financial healthcheck

Many people get into trouble because of lack of awareness in relation to their finances; there is plenty of advice around and it is worth getting a financial healthcheck to avoid any future difficulties.

* Budget

Set yourself a sensible amount that you can afford to spend and keep within those limits. Make sure you get bank statements regularly so you know exactly where you are in relation to your budget.

* Prioritise

Many people get into trouble by confusing necessities with luxuries. Make a list of your monthly expenditures and work out which you can live without.

* Shop around

There are often cheaper alternatives, even for everyday items. It is worth looking around to get the best deals, as these savings all add up. The internet is a particular good place to look.

* Stick to cash

It's easy to get carried away using a credit card, and a lot of people forget just how much they cost in terms of interest. Sticking with cash means you are more likely to think twice about any purchases; it is also easier to keep track of your outgoings.