Bankruptcies blamed on credit card habit

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Mr Micawber didn't have a flexible friend but he knew a thing or two about the misery they are capable of. He would not have been surprised by new figures showing that more than a quarter of all domestic bankruptcies are blamed on the profligate use of credit cards.

The Child Support Agency would have been a novel concept to his Dickensian mind, but probably not the news that a tenth of personal insolvency cases brought last year cited the cost of divorce, or the payment of child maintenance, as a major cause.

Statistics from the Society of Practitioners in Insolvency (SPI), published today, paint a bleak picture of a nation which is unable to kick the borrowing habit. Almost two-thirds of last year's non-business-related bankrupt- cies were the direct result of consumer credit.

Credit cards and other types of borrowing, such as hire purchase and unsecured personal loans, were blamed in more than half the domestic cases. The rise in consumer borrowing offset a decline in the proportion of people brought down by the cost of paying their mortgage or giving personal guarantees to business loans.

The decline in mortgage-related bankruptcies is a continuation of a marked decline in problems related to home loans since the survey was first conducted in 1991. Only 9 per cent of domestic bankruptcies were blamed on mortgage bills compared with 31 per cent in 1991 when interest rates were more than twice their current level.

The CSA denied the charge that it was driving absent parents into financial difficulties: "Like any other organisation responsible for enforcing legal or financial responsibilites, the CSA can enter people's lives at difficult times. However, absent parents will always be left with at least 70 per cent of their net income after paying maintenance."

Commenting on the results, Gordon Stewart, president of SPI, said: "Insolvency professionals have long been aware that marital and family breakdown is a common consequence of an individual becoming insolvent.

"The survey shows that the opposite is also true - people who are already facing financial difficulty can become insolvent, because they haven't made allowance for paying maintenance to former partners and children on top of their other debts.

"These are debts they can't avoid. Even if they enter insolvency proceedings, the courts will still require absent parents to meet their responsibilities."

Although consumer credit has emerged as a dominant cause of domestic bankruptcy, business reasons still account for two-thirds of personal insolvencies. Within the business category, the tax man and the inability of small-business people to put enough aside for the annual tax demand are confirmed as the most likely reason for individuals to be swamped by debts.

Bankruptcy petitions by the tax authorities have always accounted for a large proportion of personal insolvencies, partly because, unlike many other creditors, they have the resources to pursue debts regardless of whether it makes commercial sense to do so.

Within domestic bankruptcies, marked regional differences emerged last year, with individuals in Scotland and the Midlands proving worse at managing their money and businesses than elsewhere. More than 34 per cent of business- related insolvencies in the Midlands were caused by tax and VAT debts, compared with 21 per cent nationally. The figure for Scotland was 27 per cent.

In the South East more people came to grief with credit cards than any other cause. Redundancy lay behind almost a third of bankruptcies in the South West while half of all problems in East Anglia were caused by mortgages. In the North West, hire purchase and unsecured personal loans accounted for half of all cases.