Bankruptcies reach all-time high

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The Independent Online

Personal insolvencies in the second quarter of this year were the highest since records began, as individuals struggled to cope with mortgage payments and credit card debts.

Britain's consumer culture and the easy availability of credit were blamed as the primary reason for the 11,214 personal insolvencies in England and Wales. Of these, 8,740 were bankruptcies, an increase of 8 per cent on the previous quarter and 29 per cent jump on the second quarter last year. That was the highest bankruptcy figure for any quarter since the first quarter of 1993, in the midst of the last major recession.

The second quarter of 2004 also saw 2,475 people enter into the less draconian insolvency process called an "individual voluntary arrangement" - a 27 per cent increase on last year.

Taking the bankruptcy and IVA figures together, it was the highest total individual insolvency number for any quarter since the Department of Trade and Industry started keeping records in 1960. The latest figures followed big rises in the first quarter of this year and the last quarter of 2003. For this year as a whole, there are likely to be more than 40,000 individual insolvencies, another record.

Robert Pick, of accountants Grant Thornton, said: "Personal insolvencies have now reached epidemic proportions. The reasons behind the numbers continue to rest squarely on excessive consumer borrowing. It's a cultural thing. People want everything now, not tomorrow, and they can do that on credit."

The news will add to pressure on the Government to bring forward measures to tackle the personal debt crisis. It will also bring renewed scrutiny on the practices of lenders, including the high street banks, which continue to report multibillion-pound profits.

Figures published in July revealed consumer debt exceeded £1 trillion for the first time. A recent DTI report showed that one-fifth of households were already experiencing "financial difficulties".

Patrick Boyden, a partner at PricewaterhouseCoopers, said: "UK consumers are buckling under a mountain of personal debt. People have borrowed to the extremes and are struggling to repay their debt. In a rising interest rate environment the pressures on those who have borrowed to the hilt are unlikely to disappear soon."

The DTI is studying measures to tackle the problem. Possible changes could include forcing lenders to adopt new more "responsible" codes of conduct and changes in the insolvency law.

Gareth Hughes, the president of R3, the Association of Business Recovery Professionals and a partner at Ernst & Young, said that personal debt was a "live issue" with ministers. He added: "The ability to obtain credit is much easier than it was 10 or 20 years ago."

He said that offers such as a period of zero interest for new credit card customers were encouraging indebtedness and hiding problems for the individuals.

Mr Hughes said that one way forward would be to reform the individual voluntary arrangement process to make it more suitable for ordinary people. This form of insolvency allows a proportion of debts to be paid off on a schedule agreed with creditors without all of an individual's assets being seized. Currently, the process is costly and is aimed at sole traders, requiring, for instance, the convening of a meeting of creditors.

Insolvency experts said that the bankruptcy figures for the second quarter of 2004 were likely to have been inflated by a change in the law this April. This shortened the period before a bankrupt is "discharged" from three years to one year, making it appear a "softer" option than it used to be.

In contrast to the personal figures, company insolvencies fell 17 per cent in the second quarter, compared with the period last year.