Christmas Overspending to Drive Thousands further into Debt

WEDNESDAY, JANUARY 10, 2007

New research suggests that overspending during the holiday season during the last half of December will force over 10,000 people into bankruptcy, according to accountancy firm Grant Thornton, and it is estimated that these 10,000+ people will file for insolvency before April 2007.

The company predicts that these 10,000 people will amount to a third of the total 30,000 people in the UK expected to file for bankruptcy between New Yearís Day and the start of April 2007. Grant Thorton blamed the social trend of buying now and paying later that has led to increased borrowing and increased debts. High interest rates and utility bills were also blamed.

In 2006, there were well over 100,000 insolvencies and the company expects the number of insolvencies to increase further to new record levels. "Last year, during the period straight after Christmas, when most bills started to hit the doormat, we witnessed the highest ever amount of people going into personal insolvency," said Mike Gerrard of Grant Thornton. ìWe regularly see people, especially over Christmas and with the start of the sales, add to their problems in quite a substantial way. This year, things could be even worse."

The popularity of IVAs is also expected to rise in 2007. Last year, there was an increase of more than 55% in the number of people filed for bankruptcy or issued an IVA. From January to September of 2006, 75,000 people in England and Wales filed for insolvency. However, one of the greatest new trends in 2006 was the rapid growth in the number of people taking out an IVA, an agreement reached between the lender and the debtor, which can cut the amount of owed debt, as long as regular monthly payments are made. The use of IVAs has been heavily promoted heavily by a number of financial institutions in recent years

However, the IVA has been criticized heavily by the banks as they have said that IVAs have forced them to write off more than 1 billion pounds in loans and credit to those who signed insolvencies.Some say that during 2007 or 2008, IVAs will become more popular than insolvencies.Sarah Miller, a spokeswoman at Citizens Advice, said: "We do see evidence of a Christmas debt hangover, and this month we expect to exceed the 140,000 debt problems that Citizens Advice bureaux dealt with in January 2006."