Bankruptcies show sharp increase
Nearly 70,000 people became insolvent in 2005, the highest annual total since records began, the Department of Trade and Industry (DTI) has said.
There were 20,461 insolvencies in the final quarter of 2005, a rise of
57% on the same period in 2004.The rise in insolvencies has been blamed on greater personal debt, slow growth and bankruptcy rule changes.
About two-thirds declared themselves bankrupt, the rest took out Individual Voluntary Arrangements (IVAs).
IVAs are an alternative to bankruptcy which allows debtors to come to an agreement with their creditors.
Under IVAs debtors agree to repay a set amount each month in return for the freezing of interest charges.
Credit boom
In total, 13,501 people were officially declared bankrupt during the final quarter of 2005, up 10.9% on the previous quarter and 37.6% year-on-year.
Accountancy and consultancy firm KPMG pointed the finger at the UK credit boom of recent years for rising bankruptcies.
"The levels and availability of credit have been increasing for some time and recent figures from the Bank of England show that this trend is continuing," Steve Treharne, head of personal insolvency at KPMG, said.
"The more people incur credit, it is inevitable that this will be followed by increases in personal insolvencies," he added.
Company insolvency
The number of companies going bust is also on the rise.
In the third quarter of this year 3,187 firms in England & Wales went into liquidation.
That was 8.5% more than during the same period last year.
Softer option?
Experts have argued that recent changes to bankruptcy laws have made people more willing to choose bankruptcy as a way of sorting out their finances.
Before April 2004, anyone who was declared bankrupt typically had to wait at least three years before they could be discharged.
That time limit was reduced to just one year by the Enterprise Act (2002).
Groups representing debt collectors have previously described the new bankruptcy rules as a "softer option."
The introduction of IVAs has also eased the burden for some people.
During the final quarter of 2005 6,960 people took out IVAs.
"The rise in IVAs is more likely to mean that more people are finding solutions than that more people are getting into trouble," Malcolm Hurlston, director of debt charity the Consumer Credit Counselling Service, told BBC News.