Debt: The English Disease!

The number of people going bust in England and Wales is rocketing, but it's a different story in Scotland.

Sadly, figures out today from the Insolvency Service show that individuals in England and Wales are going bust in record numbers as "easy credit" turns into "tough debt"!

Englandand Wales

In total, 27,644 people became insolvent or bankrupt in the third quarter of 2006, which is an increase of 55% on the same period last year. Of these, 15,416 became bankrupt (up 27%) and 12,228 entered into Individual Voluntary Arrangements (IVAs), up an astonishing 118%. If these trends continue, we may see the IVA overtake bankruptcy as the most common form of personal insolvency from 2007 onwards.

Alas, the number of insolvencies is certain to break through the 100,000 mark by the end of the year. Indeed, if there are 32,600 more in the fourth quarter of 2006, we could see the total hit 110,000, as I predicted in Britain's Going Bust! To put these figures into context, there are around 53 million people in England & Wales, so 1 in 540 of us went bust in the past twelve months.

It's worth noting the rate of increase in insolvencies is slowing, which is something to be grateful for. Having jumped 16% between the third and fourth quarters of 2005, the rate of increase has fallen steadily to reach just 6% between the second and third quarters of this year, as the following table shows:

Bankruptcies in England and Wales are booming following changes introduced by the Enterprise Act 2002 which came into force in April 2004. However, the Act made no changes to the existing rules for IVAs, which have exploded in popularity due to the massive increase in "Delete 80% of your debts today!"-style advertising.

Ads for IVAs usually imply that an IVA is a soft option. However, given that there are several "parasite" IVA providers which feed off unsophisticated borrowers, I'd always recommend that anyone with debt difficulties consults one of the free, independent counselling services provided by charities such as the Consumer Credit Counselling Service or National Debtline. Remember, a firm recommending an IVA stands to make money from this advice!

Scotland

Scotland has different insolvency laws to England & Wales; its versions of bankruptcy and IVA are known as sequestration and protected trust deeds respectively. Here are the figures for both:

As you can see, the number of personal insolvencies has remained fairly steady in Scotland, with a rise in sequestrations cancelled out by a fall in trust deeds. However, Scotland's population is around five million, which means that 1 in 378 Scots went bust in the past year -- a much higher proportion than that in England & Wales. Whatever happened to the Scottish reputation for financial shrewdness? Perhaps it all went wrong following the Act of the Union three hundred years ago in 1706!

Northern Ireland(NI)

The rules for personal insolvency in Northern Ireland closely match those for England and Wales. Here's how the figures for NI stack up:

Although Northern Ireland is also experiencing a boom in going bust, it is starting from a very low base. With a population of 1.7 million, only around 1 in 987 people in the Six Counties became insolvent in the past year. Let's hope that this figure doesn't increase as Northern Irish adults get the borrowing bug!

Company liquidations (England and Wales)

Although individuals are going bust at record rates, company liquidations have actually fallen over the past twelve months. A total of 3,235 companies in England and Wales went into liquidation in the third quarter of 2006, which is a decrease of 4.3% on the same period of 2005. Overall, only 0.7% of active companies went into liquidation in the twelve months ended Q3 2006, which is just one company in 143. At least we've found one bit of good news!

Finally, with another rise in the Bank of England's base rate almost certain to arrive on Thursday, 9 November, things are getting tougher for Britain's borrowers. For more advice on coping with difficult debts, read Borrow Enough To Get Out Of Debt, Ten Ways To Dump Your Debts and Twenty Steps To Debt Freedom, and visit the Fool's Get Out of Debt centre and Dealing with Debt discussion board.

More: For cheaper credit, switch to a 0% credit card, low-rate personal loan and Best Buy mortgage!