Bankruptcy Rate Worsening

Posted 2008-01-2

High credit card bills and increasing mortgage payments are at the root of the problem for many people forced to declare bankruptcy this year. In the past, people have enjoyed easy access to cheap credit, but that trend looks to be coming to a swift end, said Mark Sands of KPMG accountants. The firm estimates that 130,000 Brits will declare bankruptcy this year following Christmas overspending. The figure was 110,000 in 2007.

The options for such people are limited: they can be declared bankrupt or they can take out Individual Voluntary Arrangements (IVAs). IVAs entitle them to start anew without debt once they have repaid a portion of their debts to banks and credit lenders.

Homeowners with fixed-rate mortgages due to expire will be among those hit hardest by the high interest rates. They face soaring repayments in the range of £1,390 per month on a £150,000 mortgage.

Others may be headed for insolvency if they cannot control their debts without consolidating old loans or moving debt on to new low-interest credit cards. The tightening of lending practices will only make the situation more difficult for them.

Mr Sands warns that people will not have the credit lifelines they are used to relying on. Currently, one out of every two new credit card applications is being rejected – a rise of 20% since the credit crisis began.

Leave a Reply