NEARLY 60 Scots a day will hit their own personal “financial Armageddon” and become
insolvent this year, experts have predicted.
The grim forecast ahead of tomorrow’s return to work for many is accompanied by a warning that the rate will not fall for several years because of the uncertain economic climate.
The total is the equivalent of almost 400 people going bust a week – or about 20,000 this year. That rate has more than doubled within a decade and increased nearly five-fold over the last 15 years.
In addition, there are believed to be hundreds of thousands of others in Scotland mired in debt because they can only afford to meet interest payments.
Accountancy and business advisory firm PKF warned that the total number of people being sequestrated – the Scottish term for bankruptcy – or having to take out a protected trust deed because of their debts, was also expected to have reached 20,000 during 2012.
The deeds are typically used by people who have earnings and assets, or have a house with equity, to strike a deal with creditors.
Bryan Jackson, PKF’s corporate recovery partner, said the economic slump meant the “very high” level of insolvencies was not expected to come down for some time.
He said: “With no improvement in the economy, employment insecurity rife and rising living costs, there is little sign of this level of personal insolvency reducing over the next three to four years.
“This means that another 80,000 to 100,000 Scots will go bust in the next four to five years.”
There were 19,634 sequestrations and personal trust deeds taken out in 2011, with 14,520 in the first three quarters of 2012. Mr Jackson said personal insolvencies “whilst stabilising, remain at a very high rate in historic terms”.
He said: “Personal insolvencies appear to be steady at around 20,000 per year. While this number is lower than the peak achieved in 2009, when 23,541 Scots were made bankrupt, it is by any standards a very high figure indeed.
“In 2004, there were 9,321 Scottish personal bankruptcies, and in 1998 there were just 4,465.
“The reality is that 400 Scots face financial Armageddon each week.
“Given that personal insolvencies are at the extreme end of financial distress, it should be noted that there will be hundreds of thousands of Scots simply treading water and meeting interest rate payments, but with little hope of repaying their debts in the near future.”
Mr Jackson said the outlook remained bleak. “Scotland is still some considerable time away from recovering from the recession,” he said.
“We have a personal insolvency rate which continues to be almost twice that of the rest of the UK, and a static economy that is unlikely to drive forward growth in the next year or so.
“With an enormous dependence on the public sector for employment, it is unfortunate that Scotland looks likely to have a less-than-happy new year in 2013.”
He attributed this to the higher proportion of public-sector jobs being cut, wage freezes in the public sector and possibly an over-reliance on the housing “bubble” to fund lifestyles.
Debt charities agreed the situation was dire. StepChange, the former Consumer Credit Counselling Service, said about 150,000 Scottish households were spending more than half their income on repaying debts.
A spokeswoman said: “There is still a lot of pain out there. People’s budgets are really bursting at the seams.
“They do not have the disposable income to repay their debts or the ability to manage them.”
Citizens Advice Scotland urged people not to take out high-interest “pay-day loans” to avoid insolvency. Concern has increased that such lenders are cashing in on Scotland’s debt problems, with the number of clients north of the Border having soared by nearly four-fold since 2009.
Head of policy Susan McPhee said: “Every such case is a personal tragedy and a family whose finances have been wrecked – with all the stress and misery that comes with that.
“The sad thing is that it can so often be avoided. Many people are struggling to make ends meet, and lots of them get into debt.
“But that doesn’t have to lead to insolvency – not if you make the right decisions about how to manage your situation, and there is support available to help you do that. Some pay-day lenders have rates of over 4,000 per cent. That sort of rate can be devastating for those whose incomes are low or unstable.
“Our evidence suggests they are being used by more and more households, and can often turn a problem debt into a crisis one.”
The Scottish Government said it continued to look at ways to help individuals struggling to break the cycle of debt, including the use of its insolvency service, Accountant in Bankruptcy.
“Through its work on bankruptcy law reform, Accountant in Bankruptcy is in the process of determining how debt management and debt-relief mechanisms can be further modernised to ensure that relevant and proportionate options are available,” a spokesman said.
“The Scottish Government’s debt management tool, the debt arrangement scheme, continues to be a viable option for Scots struggling with debt.
“The scheme freezes interest and helps people struggling with debt pay back what they owe over a longer period.”
However, the spokesman added: “It is difficult to compare personal insolvency figures from 2004 with the present day due to the introduction of new routes to bankruptcy for those most in need of debt relief, such as the low-income, low-asset route introduced in 2008.”