The year 2009 is likely to witness a record number of personal insolvencies with over 1,50,000 people likely to be declared bankrupt in the UK, professional services firm KPMG said.
According to data analysed by KPMG, 2009 may see personal insolvencies reach record levels, with over 1,50,000 people entering into an individual voluntary arrangement, being declared bankrupt or entering into a debt relief order.
IVAs enable an individual in financial distress to approach his creditors with a plan to restructure his debts. This typically involves the debtor making regular affordable monthly payments for a fixed period of time, at the end of which the balance of the debts is written off.
"Most IVAs deal with personal loans, credit card balances and other forms of unsecured debts.
Most of this money was borrowed to meet 'current' expenditure including lifestyle items such as holidays, or to meet monthly shortfalls in the household budget, rather than to acquire assets or to fund a business," Mark Sands, director of personal insolvency at KPMG said.
According to KPMG the total number of personal insolvencies in England and Wales according to the government's Insolvency Service (bankruptcies and individual voluntary arrangements combined) would amount to over 1,50,000.
Last year creditors had to write off at least 1.1 billion pounds in bad debts as a large number of people had entered into IVAs.
The average IVA debtor owed 47,800 pounds and proposed to repay only 38 per cent of this sum.
KPMG estimates that over 2,500 people entered into IVAs with debts exceeding 1,00,000 pound in 2008. Last year around 37,000 people used the IVA procedure to writeoff a portion of their debts.
According to KPMG estimates around 67,000 people were declared bankrupt in 2008, taking total number of personal insolvencies to around 1,04,000 last year.
This year the government plans to introduce debt relief orders in April, which would allow consumers with debts of less than 15,000 pound and minimal assets or surplus income, to writeoff their debts without entering into a full blown bankruptcy.
DROs, together with the expected increase in unemployment, are likely to lead to record levels of personal insolvency of over 150,000, states KPMG.
According to KPMG one in six people (16 per cent) had their IVA turned down by creditors.
Many people who fail to get an IVA approved by creditors end up in bankruptcy, with others entering into debt management plans.