Bankruptcies hit all-time high

THE number of people unable to pay their debts in in England and Wales has soared to an all-time high. Official figures show individual insolvencies were up 28% in the first three months of 2005, compared to a year earlier.

The Department of Trade and Industry said there were 13,229 individual insolvencies in the January-March period - the highest since records began in the early 1960s. The figure was up 2% on the previous quarter.

Within the total, 10,091 of the insolvents chose bankruptcy - an increase of 24.5% on a year earlier - and 3,139 opted for more palatable individual voluntary agreements (IVAs), which allow debtors to strike a deal with their creditors.

The figures also revealed 37,886 people have been made bankrupt in the full year to the end of March, a 30% increase on the previous year.

The news comes a week after the Department of Constitutional Affairs said court applications for house repossessions had risen to 10-year high of 17,444, up 25% on a year earlier.

Steve Treharne, head of personal insolvency at KPMG, warned: 'The two trends are not unrelated. There is a big black cloud of debt hanging over the UK.

'If the current trend continues, we could see annual rates of 60,000 bankruptcies within the next three years.'

Britons have embarked on a consumer boom, fuelled by rampant borrowing in recent years. The total owed on loans, credit cards and mortgages crashed through the £1 trillion-mark last year and is expected to hit £1.1 trillion by the summer.

Debt experts have also reported a surge in the number of young people struggling with their finances. The Consumer Credit Counselling Service, a charity, said the proportion of people aged under 25 seeking its help has leapt to 12.5% from 6% three years ago.

A change in bankruptcy laws last year may also have had an impact. The Government cut the discharge period ? during which a bankrupt cannot open bank accounts, take out credit cards or resume normal financial life ? from three years to one. The length of time an order remains on a bankrupt's credit record was reduced from nine years to seven. 'It's an easier option than it was before,' said a spokeswoman for the CCCS, 'but it's never the only solution.'

A series of interest rate rises since late 2003 may also have had an impact, making debt repayments more expensive. The base rate has increased from a low of 3.5% to 4.75%. Another quarter-point rise is expected in coming months.