Banks take the blame as 33,000 are declared insolvent

Treasury Select Committee wants help for borrowers struggling with repayments
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The Independent Online

More than 33,000 people were declared insolvent during the second quarter of the year, official statistics revealed yesterday, the highest number ever recorded.

The Insolvency Service said 33,073 people in England and Wales became insolvent over the three months to the end of June, a 27 per cent increase on the same period last year. The steep increase – the total was 9 per cent up on the first three months of the year – reflects continued rises in unemployment as the recession continues, as well as the reluctance of banks and other financial institutions to lend to individuals who are struggling with their finances.

Almost 19,000 people were declared bankrupt during the second quarter of the year, 15 per cent more than in the same period of 2008, while a further 12,000 people entered into individual voluntary arrangements, agreements with creditors that fall short of full-scale bankruptcy. IVAs were up by 27 per cent on last year.

In addition, 2,000 people signed up to debt relief orders, a new type of insolvency agreement introduced in April for those with relatively small amounts of borrowing.

Insolvency experts warned that the combination of rising unemployment and the lack of stigma attached to options such as IVAs and debt relief orders meant the number of people affected would go on rising.

Mark Sands, director of personal insolvency at Tenon Recovery, predicted 140,000 people would be declared insolvent during 2009, 30 per cent more than in 2006 – the worst year on record so far – when the figure was 107,000.

"The overall record level of personal insolvencies, whilst at first shocking, hides the detail which suggests the worst is yet to come," Mr Sands warned.

John Bangham, director of personal insolvency at KPMG, said many people now had little to lose by becoming insolvent. He said: "Whilst consumers will fight to keep their jobs and their family homes, for those who lose both there is often little reason for someone with debts and minimal assets not to declare themselves bankrupt."

The dramatic increase in insolvencies comes as the Treasury Select Committee warns that mortgage lenders, regulators and the Government must do more to help borrowers finding it difficult to stay on top of home loan repayments.

A report due to be published by the committee today accuses some lenders of moving toward repossession too quickly and also attacks the Financial Services Authority for failing to crack down on lenders that charge excessive penalties on arrears, which can often compound borrowers' problems.

"The next few years are likely to see the number of families in mortgage difficulties rise steeply," said John McFall, chairman of the committee. "This is why it is so important to ensure lenders are complying with the rules to only use repossession as a last resort and that the FSA is enforcing those rules."

Mr McFall's committee of cross-party MPs also said the Government had been quick to introduce short-term schemes to help people with mortgage difficulties but warned that the fact it had had to do so suggested it had not been planning for the long-term. It also said some of the schemes seemed ineffective.

Mr McFall said: "The Mortgage Rescue Scheme was designed to assist upwards of 6,000 households, but thus far only six households have directly benefited from the scheme. I am looking for answers as to why this is the case."

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