So you think the wreckage has been left behind?

As bankruptcies soar, Sam Dunn asks if this is really the softest option for the heavily indebted or one that may return to haunt you

Hear someone described as in their late 20s, with a wallet full of credit cards, nearly £30,000 to their name and seeking attention, and you might imagine a resumé at a dating agency. Unfortunately, it's the profile of the average caller to the Consumer Credit Counselling Service (CCCS), the body that helps those struggling to manage their debts.

Hear someone described as in their late 20s, with a wallet full of credit cards, nearly £30,000 to their name and seeking attention, and you might imagine a resumé at a dating agency. Unfortunately, it's the profile of the average caller to the Consumer Credit Counselling Service (CCCS), the body that helps those struggling to manage their debts.

"They typically owe £28,000 to about 11 creditors, including banks, stores and utilities," says Frances Walker of the CCCS.

"One in four who we see for counselling is [told] bankruptcy is one of their best options," she adds.

Last year, it advised 37,530 people; this year, it's on track for over 40,000.

It's a similar story at the Citizens Advice Bureau. "More of our advisers are suggesting bankruptcy as the way out," says CAB debt specialist Sue Edwards. "We recently had one individual with 31 credit cards owing more than £100,000."

Ms Edwards believes that the rising number of debt-ridden individuals is "about a socio-cultural attitude to borrowing and lending; and it's about plenty of competition between lenders too."

Others point instead to changes in the law last year. These allow an individual to be discharged from bankruptcy and walk away from their debts in less than 12 months; it was three years before.

Interest rates have also played a part. They have been steady at 4.75 per cent since last August, but there was a swift rise from 3.5 per cent in October 2003.

Whatever the main driving force, in the first three months of this year the number of quarterly bank- ruptcies broke through 10,000 (10,091) for the first time - up by 25 per cent on the first quarter of 2004, according to figures from the Government.

Last year there were 46,651 bankruptcies or individual voluntary arrange- ments (where you enter a legal agreement to repay your debts). This broke the previous record of 36,794 in 1992, during the depths of the last recession.

Then, collapsed businesses and redundancies were fuelling the figures. Today's bankrupt is more likely to have had no full-time job and run up tens of thousands of pounds on credit cards.

Most bankruptcies in the first quarter of this year were down to consumer debt (75 per cent) and to personal circumstances such as redundancy and divorce, according to research from accountants PricewaterhouseCoopers (PwC). It has also found that 15 per cent of bankrupts in the 12 months to 31 March 2004 were aged 30 or younger.

Patrick Boyden, a partner at PwC, adds that a "new bankrupt" is emerging - "one who is more likely to be female, under 30 and who hasn't been in business".

There are growing signs that worse could be to come. Over the past few weeks, lenders including Barclaycard and Royal Bank of Scotland have alerted markets to the worrying trend of bad debts among consumers. And hopes of an interest rate cut have been dampened.

Like many, Mr Boyden is concerned that people "mistakenly believe bank-ruptcy is a softer option".

To start with, it will cost you £450 simply to file a bankruptcy form, picked up at your local county court and then passed to an Official Receiver.

Your credit reference, crucial for a mortgage or bank loan, will be marked for six years after you've been discharged. Fewer lenders will be prepared to offer you money, and those that do consider you will charge higher rates. "For a mortgage, you could expect to pay as much as 1 or 2 per cent higher than on a standard loan," says James Cotton at broker London & Country.

Additionally, you will have to surrender all your possessions - except basics like clothing - to the court if you seek bankruptcy, and may have to cash in your life insurance policy. You can lose your home, although this can be delayed for at least a year to let you make other arrangements.

Credit of £500 or more cannot be applied for without disclosing your bank- ruptcy. And while your bank account won't necessarily be closed down, that is at the lender's discretion.

Finally, your details will appear in The London Gazette, a journal for the credit industry, and in your local newspaper.

www.insolvency.gov.uk

HOW TO DEAL WITH YOUR DEBTS

* Get free specialist advice from a body such as the CCCS, CAB or National Debtline.

* Make a list of all your debts in order of priority, so those with the greatest potential for legal action are at the top. These should include mortgage arrears (loss of home); rent arrears (eviction); income tax and VAT bills (prison); and power- supply debts (cut off).

* Try to negotiate repayments with your creditors; many will be sympathetic to genuine efforts to get a grip on debt.

* Explore every avenue before considering bankruptcy, including a debt-repayment plan or individual voluntary arrangement.

* Debt-management firms usually charge a fee and tend to deal with non-priority cases.

* Contacts: Consumer Credit Counselling Service, www.cccs.co.uk/ 0800 138 1111; Citizens Advice Bureau, www.adviceguide.org.uk; National Debtline, www.nationaldebtline.co.uk/ 0808 808 4000.