Surge in bankrupt Scots 'only the start of a worrying trend'

THE number of Scots going bust has risen by more than 1,000 in the last few months - the biggest jump in three years.

Experts warned the increase is only the "start of a trend" in the months ahead as the full impact of spending cuts and a stagnant economy start to bite.

Personal insolvencies reached 5,319 between April and June, according to official figures from the Accountant in Bankruptcy (AiB). That was up from 4,262 in the previous three months - a rise of 25 per cent.

It is the biggest hike since 2008, although the figures remain 1 per cent below the same period last year.

Bryan Jackson, corporate recovery partner with accountancy firm PKF, said: "This dramatic rise in the number of personal bankruptcies in Scotland is a sign that the impact of the recession is still being felt.

"This must be due to rising utility, food and fuel prices coupled with a freeze in pay which means that hard-pressed individuals are now succumbing to years of built-up indebtedness."

He warned: "Given that we have yet to see the full implementation of public sector job cuts, these figures would tend to indicate the start of a trend rather than the end and I believe that the number of Scots being made bankrupt will increase for some time to come."

Iain Fraser, Scottish spokesman for insolvency professionals trade body R3, added; "It is highly likely that financial pressures will continue to produce high levels of personal insolvency among Scots for some considerable time."

The number of people seeking help through Debt Payment Programmes is also on the increase. A total of 643 people with money problems joined the schemes, as a way of avoiding insolvency, in the first three months of 2011-12.

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This was up from 478 the previous quarter, a rise of 35 per cent, and up from 494 at the same time last year.

In recent years, the number of people going bust in Scotland peaked at 6,294 in the first quarter of 2009-10. This has steadily fallen away in the past few years, dropping to 4,262 in the first three months of this year - before the dramatic rise between April and June.

Of the 5,319 in this period, there were 2,947 awards of bankruptcy. The remaining 2,372 cases came through protected trust deeds (PTDs) which are voluntary arrangements, where the person in debt passes their estate to an insolvency practitioner who arranges to pay off part of the debt.

PTDs increased by 51 per cent between April and June and by 6 per cent on the corresponding quarter of last year.

Enterprise minister Fergus Ewing, who is responsible for personal insolvency and debt management, said: "While these new figures mark an increase in personal bankruptcies this quarter, I am encouraged that there has been reduction on levels when compared to this time last year.

"The recent increase in individual bankruptcies can perhaps be explained by the success of the certificate for sequestration, introduced in November last year through the Home Owner and Debtor Protection Act to help people in need of debt relief who previously didn't qualify."

The certificate was used by 759 struggling Scots in the first three months of 2010-11 - a 37 per cent increase on the previous quarter.

Today's figures follow two reports yesterday that demonstrated the extent of Scotland's debt problem.

Citizens Advice Scotland (CAS) said a quarter of its cases last year were from people in debt difficulties, while a survey by R3 suggested that a higher proportion of people in Scotland rely more on credit cards, overdrafts and payday loans than people in the rest of Britain.CAS chief executive Lucy McTernan said many Scots struggling with heavy debts were choosing bankruptcy as the "lesser of two evils".

"If you are struggling with debt which has become unmanageable, and you really can't see a way out of it, then bankruptcy can be your only realistic course of action," she said.

Gordon MacRae, head of communications and policy at Shelter Scotland, said: "The increase in individual bankruptcies is worrying.

"As Scotland begins to feel the full impact of savage cuts to jobs and housing benefits, and as more people face even greater debt, the perfect storm is brewing for a rise in homelessness."

Research by the homelessness charity has indicated that 5 per cent of Scots have used credit cards to pay their mortgage or rent in the last year.

"This reliance on high-interest options such as credit cards to pay rent or a mortgage is highly dangerous," Mr MacRae added.