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30,000 personal insolvencies expected in first three months of 2007

Almost 30,000 personal insolvencies are expected in the first three months of 2007, reveals Grant Thornton.

Out of these, 10,000 will be as a result of excessive Christmas spending. The prediction comes in the wake of record numbers of personal insolvencies in 2006, which will exceed 100,000 for the first time ever.

Mike Gerrard, head of Grant Thornton’s personal insolvency practice, says: “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. This year things could be even worse.

“Since last Christmas, several developments such as interest rate rises, sky high utility bills and increases in unemployment, have contributed to pushing more people into financial trouble.”

Two quarter point increases in the cost of borrowing back in August and November have been followed by the Bank of England reporting, in December 2006, that 7.7% of home owners with a mortgage had reported problems in meeting their repayment commitments – the fourth successive year on year rise.

Additionally, the well reported increases in utility costs, have played a major part in pushing inflation to its highest level in nine years, thus reducing consumer spending power.

The year has also witnessed a large increase in the number of unemployed which increased by 197,000 to reach 1.70 million.

He adds: “While the figures may suggest belt-tightening exercises up and down the country, people are still spending, in fact, during 2006, Britons borrowed almost 14bn in unsecured lending alone.

Despite complaints of warm weather putting off shoppers, retail spend in
2006 was still higher than in 2005.

“Reports of last minute Christmas shopping sprees clocking hundreds of millions of pounds in retailers’ tills and further stretching many financially perilous consumers only adding to the problem.

“The simple conclusion is that as money available becomes tighter but spending increases, it is inevitable that more people will help flare up the statistics in the new year.

“Many people also funded their Christmas shopping sprees on their credit cards this year.

A little overspend will not break the bank for most, but for those who are already financially overstretched, spending that little bit more during the festivities can represent the last straw that breaks the camels back, plunging individuals in already precarious financial positions further into debt and quite possibly towards bankruptcy.

“An individual with serious debts will typically have a mortgage in the region of 50,000 to 100,000 and commonly credit and store card debts of 60,000 or over.

Whilst this may sound like a warning call to stay away from the high street during the January sales, the fact remains we regularly see people, especially over Christmas and with the start of the sales, add to their problems
in quite a substantial way.

“I expect that personal insolvency levels will continue to edge forwards this year.

“While they may eventually settle down before next Christmas, they will do so at an already high level.

At present, there are simply not the conditions in place to expect a sudden drop.

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