More set to take the plunge

This spring ministers expect a rash of bankruptcies. Rising consumer debts and new rules that make it easier to escape the clutches of creditors will, they believe, encourage more people to take the plunge.

Filing for bankruptcy is already much in vogue. More than 9,000 bankruptcy orders were registered with the official receiver in the three months to last September. That's a 50% rise on the same period in 1998. And two thirds of the 9,000 who went bust were individuals. Back in 1998 only half of bankruptcies were individuals rather than businesses.

The third stage of the Enterprise Act comes into force in April bringing with it a series of changes to insolvency laws for individuals. Among many reforms, ministers have cut the time before debtors are discharged from bankruptcy from three years to one.

Nick Hood, of insolvency practitioners Begbies Traynor, agrees the new rules will encourage people with large debts from credit cards, tax bills or bank loans to file for bankruptcy. "The credit card companies are going to be clobbered," he says.

But he warns anyone thinking of escaping their debts to seek professional advice first. Bankrupts lose all control of their assets, which can be significant if one of them is the family home.

It will be sold and the mortgage repaid whether the individual files for bankruptcy or they are forced into it (the worst possible scenario) by a creditor. Even if you rent a flat and have few possessions there is a price to pay.

"Too many people just declare themselves insolvent without finding out if it is the best route for them. For anyone who is a professional it cannot be good news. If you run a business it isn't good news either.

And just because you will be discharged from bankruptcy after a year after April doesn't mean you can buy a house, get a credit card or qualify for lots of jobs. And if you do want to borrow money in the future it is likely to be from secondary lenders offering premium interest rates."

He says an individual voluntary arrangement is often a better route. An IVA can be negotiated by a local Citizens Advice centre, though he recommends consulting a bona fide insolvency firm. "Any respectable practitioner will offer an hour's time free to help sort things out. The CAB can recommend one."

An IVA will involve assessing the debtors assets and liabilities, earnings and expenditure and then putting together a proposal. If the debtor agrees to pay back at least 30p in every £1 of debt they are likely to strike a deal that avoids bankruptcy.

· For more info: insolvency.gov.uk