Tue 15th Jul, 2008
Record number of insolvencies for 2008
The high levels of debt that Britons have built up over the past few years are finally coming back to haunt many households. The impact of the credit crunch is starting to take its toll on borrowers according to experts and it is expected that things are going to get much worse as the year progresses.
The accountancy firm KPMG has said that it is predicting that over 130,000 people are going to be declared bankrupt or enter into individual voluntary arrangements with their lenders. This will be up from the 109,615 who did the same last year.
When people enter into individual voluntary arrangements (IVA) they are allowed to restructure debts such as personal loans, credit cards and hire purchase so that their debts can become more manageable. Monthly repayments are made for a fixed period of time with the remainder of the debt being written off at the end of the period.
It is estimated that as many as 2,500 people have debt in excess of £100,000. In 2007 the average amount owed by individuals entering into IVAs was £50,300.
KPMG found that the average repayment for a loan on an IVA was 38% of debt. The average debtor repaid £19,000 of their debt and as a result £1.3bn had to be written off by creditors.
The high average level of debt indicates just how bad lending has been in the past few years. Most debtors owe so much that they have no realistic way of actually repaying their debt.