Hundreds count the cost as bankruptcy soars

Published on Saturday 22 October 2005 00:44

PERSONAL bankruptcy in Scotland has soared by an alarming 56 per cent and could be just the tip of the iceberg, according to experts.

The number of Scots being sequestrated - the Scottish term for bankruptcy - surged to 1,458 in the third quarter of this year, up 55.8 per cent from just 936 in the same three months last year.

The official figures from the Accountant in Bankruptcy, the Scottish Executive agency responsible for maintaining a public register of sequestrations and company insolvencies, were attributed to huge numbers of consumers who had been struggling with debt being no longer able to cope as interest rate rises start to bite.

The data, unveiled by chartered accountant Campbell Dallas, also showed a 40.5 per cent jump in protected trust deeds, a less formal way of dealing with debt problems. This involves appointing an independent trustee to liaise with creditors to establish fixed payments to repay debt.

A total of 2,132 Scots entered into this legally-binding agreement in the three months to end-September, up from just 1,517 last year.

David Hunter, a partner at Campbell Dallas, said the figures were "shocking", and believed they had further to climb. "It appears a vast number of people are no longer able to service the huge levels of consumer credit that they have incurred," he said.

"The real concern is whether this reveals the true extent of consumers who are unable to pay their debts or if this is just the tip of the iceberg and the starting signs of a much greater problem that is yet to unfold."

Matt Henderson, recovery and reorganisation partner at business and financial adviser Grant Thornton, agreed.

Despite the Bank of England cutting interest rates in August, far more Scots could be forced to file for bankruptcy, he said. With a lead time of 18 months to two years between indebtedness starting and becoming out of control, those going bust now began floundering in a sea of debt when interest rates had just started to peak.

The public has been on a spending rampage, with soaring house prices and historically low interest rates buoying consumer confidence.

In 1974, the UK had one major credit card and a total 32 million of personal debt. In 2004, there were 1,300 credit cards carrying 56 billion. The average household has 10,500 of unsecured debt.

But, the housing market has started to stagnate, inflation has hit an eight-year high and economic growth is set to come in far below Chancellor Gordon Brown's forecasts.

Debt charities and credit industry bodies have been seeing a surge in calls for help, as consumers who have raked up 1.1 trillion in personal debt on cheap credit are no longer able to meet their repayments.

The Bank of England has warned that Britain's record debt mountain could threaten the country's financial stability, and financial strife among consumers has led to a huge slowdown on the high street, which has hit retail profits.