Record numbers of Britons are declaring themselves bankrupt, official figures show.
In the first three months of the year alone some 23,351 people declared themselves insolvent in England and Wales - a massive 73 per cent more than did so at the same time last year.
This figure was broken down into a 51 per cent rise in bankruptcies on last year, and a 142 per cent increase in individual voluntary arrangements - which allowed those in debt come to an arrangement with their creditors.
"[This increase] highlights the fact that many people have borrowed to their limits," said Howard Archer, chief UK economist at the Global Insight consultancy.
"With unemployment rising and debt levels at record high levels, there is a very real danger that individual insolvencies and mortgage repossessions will climb markedly further over the coming months.
"This danger would be magnified if the Bank of England started to raise interest rates before the end of the year, which is a growing risk."
And the number of people becoming insolvent could reach 100,000 for the first time in 2006, accountancy firm KPMG estimates.
Steve Treharne, head of personal insolvency at KPMG, added: "Earlier this year we saw a dramatic increase in the number of people calling help lines and asking the Citizens Advice Bureau and other organisations for guidance.
"The volume of callers seeking advice on debt is likely to be a major factor in this latest leap in individual voluntary arrangement numbers and, to a lesser extent, bankruptcy numbers. There is also a rise in the number and size of commercial firms proactively seeking to advise those in financial difficulty - which is an additional contributing factor to this increase."
And a recent trend to cut unsecured debt and save more has come too late to prevent further rises, he predicted.
"The levels and availability of credit have been rising for a while," Mr Treharne said.
"Although the most recent figures on bank lending show that this trend has reversed for the first time, there would have to be a prolonged period of reduction in the levels of credit before we see an end to these soaring levels of personal insolvencies. In 2006 we expect to see more than 60,000 bankruptcies and 40,000 individual voluntary arrangements – by far the highest level ever seen."
But rising debt is not the only reason behind this rise.
"The jump in individual voluntary arrangements is also being driven by other issues. For example, following changes to the law that mean that student loans survive bankruptcy, some former students are resorting to individual voluntary arrangements to escape from debts," Mr Treharne concluded.
MyFinances.co.uk
