Record number heading towards bankruptcy

Accountants KPMG are predicting that 130,000 people are heading towards bankruptcy this year after huge spending over the Christmas period.

Increasing mortgage payments and high credit card bills are also believed to be the cause of the problem. Compared with 2007, the figure was just below 110,000.

KPMG said these people will either be declared bankrupt or take out Individual Voluntary Arrangements (IVA’s), which allow people to repay banks and credit card firms a portion of their debts then start again with a clean slate.

Those already in financial difficulty who cannot make ends meet without consolidating old loans or moving debt on to new low interest credit cards may be heading for insolvency, particularly since the tightening of lending practices.

Mark Sands of KPMG said it has been very easy in the past to borrow money and extra credit has been a lifeline for people already in debt, with consolidation loans, second mortgages, a new credit card.

Mr Sands added that in the future, these lifelines are not going to be there for many people. Half of new credit card applications are being rejected – up from 30% prior to the start of the credit squeeze.

Mr Sands concluded that high interest rates are also responsible for those spiralling towards debt and homeowners whose fixed-rate mortgages expire. This group of people face soaring repayments, for example around an additional £400 a month to £1,390 on a £150,000 mortgage.

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