COMMENT
Britain Goes Bankrupt

Recent figures released by the Department for Trade and Industry (DTI) have revealed that the number of people declared insolvent in England and Wales in the third quarter of 2005 has reached a record high.

Figures showed more than 17,500 personal insolvency cases, an increase of 11.6% on the previous quarter and a whopping 46% higher than the same period, last year. Included in this figure were over 12,000 bankruptcies, an increase of 6% on the previous quarter and nearly 31% on the previous year.

Also included were over 5,500 Individual Voluntary Arrangements (IVAs). These arrangements are a less drastic method of going bankrupt, where you come to an agreement with your creditors regarding how to pay off your debts. This figure had increased even more dramatically, in this case by over 26% on the previous quarter and a whopping 95% on the previous year.

So what's caused this rise? Well, the DTI believes there is no specific reason for it. However, insolvency experts have pointed to rising levels of consumer debt, which, when we include the amount borrowed on credit cards, loans and mortgages went through the £1 trillion barrier last year, and have continued to rise significantly.

Another factor could be the way in which insolvency is currently dealt with, following the 2002 Enterprise Act. Previously, any individual being declared bankrupt would have had to wait for around three years before their debt was discharged. However, since the implementation of the Act in April 2004, this time period has been reduced to just one year. As a result, experts believe that many more people have been encouraged to opt for bankruptcy in order to deal with their personal debts, as they see twelve months as a relatively short period of time in order to clear what they owe.

What's more, experts believe that this trend of increasing insolvencies that have been observed for the past seven quarters may be far from over, with the possibility of more increases being predicted.

If your debts seem to be spiralling out of control, take action sooner rather than later. Cut back hard on your expenses and use the extra money you free up to throw at your debts. Aim at the most expensive ones first - we call this technique snowballing.

And if things really have got out of control, there are a number of organisations out there to help, such as your local Citizens' Advice Bureau. Alternatively, get in touch with the Consumer Credit Counselling Service or Payplan to help you tackle your creditors and work out a payment plan. And don't forget, there is a wealth of knowledge available in our Get Out of Debt Centre, and advice from helpful Fools on our Dealing with Debt discussion board.