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The number of people unable to cope with their levels of debt is expected to soar to record levels in 2009, an accountancy firm said today.
According to KPMG, in 2009 a record 150,000 people are expected to file for bankruptcy, enter into individual voluntary arrangements (IVA) or make use of a new debt relief order.
KPMG's predictions represent a 50% increase on 2008's levels. Personal insolvencies reached more than 104,000 last year, more than double the 46,650 seen in 2004. An estimated 37,000 people used IVAs – an agreement drawn up between debtors and creditors which allows debtors to reduce the amount paid back to a level the debtor can afford – while around 67,000 people were declared bankrupt in 2008.
KPMG claims that creditors saw £1.1bn of debts written off last year, with the average IVA debtor owing £47,800.
Mark Sands, director of personal insolvency at KPMG, said most IVAs were used by people failing to cope with repayments on personal loans, credit cards and other forms of unsecured debt. "Most of this money was borrowed to meet current expenditure including lifestyle items such as holidays, or to meet monthly shortfalls in the household budget, rather than to acquire assets or to fund a business," he said.
"By the time people realise the extent of their problems, their total debts will have been swelled by interest, charges and even further borrowing to fund the minimum repayments."
Sands said it was important for debtors to communicate with their creditors as soon as they ran into problems with repayments. "It remains essential that all involved continue to hold an open dialogue about the wide variety of solutions which are available to the increasing number of consumers struggling to manage their debts. Lenders as well as debtors will want to ensure that the best solution is found for all concerned."
The government is introducing another tool to cope with unmanageable debt in April 2009, in the form of debt relief orders which are designed to help people with debts of less than £15,000.
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