On the rise: the number of people who go for broke

Personal insolvency rates in the UK have hit an all-time high, with 43,606 bankruptcies and 16,496 individual voluntary arrangements (IVAs), a common alternative to bankruptcy, in the year to 30 September. Figures from the Department of Trade and Industry's insolvency service show that July to September was the worst quarter on record, with 12,043 bankruptcies, up 31 per cent on the same period last year.

The Consumer Credit Counselling Service says the figures could rise further. It proposes bankruptcy as one solution to the debt problems of nearly 500 people a week. If this advice was followed, the number of bankruptcy cases in England and Wales would rise by more than 24,000 a year.

This follows figures from the Department of Constitutional Affairs (DCA) that the number of mortgage possession actions in England and Wales rose by 55 per cent in July to September compared with the same period last year.

The increases have been blamed both on high consumer borrowing and rules included in the Enterprise Act which make it easier to discharge a bankruptcy. Separate figures from the DCA revealed that 65 per cent of people have applied to be made bankrupt rather than being forced into it by creditors. KPMG says the average bankruptcy in the UK now lasts eight months; before the Enterprise Act, the average term was more than three years.

The Insolvency Service has recently consulted on alternatives to bankruptcy, likely to be implemented by April 2007, that could make bankruptcy even more popular. These could see people with debts of less than £15,000 (and no assets or surplus income) having their debts written off. The introduction of simple individual voluntary arrangements would also allow more debtors to negotiate terms with creditors, again making insolvency more appealing.

Steve Treharne, head of personal insolvency at KPMG, said: 'Bankruptcy is a good option for some people, but they mustn't go into it lightly. Being discharged more quickly means they can go back into the business community, but the fact that they have been made bankrupt will remain on their record for six years.'

This will deter many lenders from extending credit, he says. Bankrupts may also find their home is repossessed and that they face social stigma and loss of employment.

Treharne warns: 'If recent figures on house repossessions and consumer lending are considered, this problem can only get worse. People who have already had their house repossessed are not going to be put off becoming bankrupt. Lenders will have to keep their credit risk and lending policies under review in light of this problem.'

· For free counselling contact the Consumer Credit Counselling Service on 0800 138 111.