According to experts at Eversheds, acceleration in the number of individual voluntary arrangements and bankruptcies could put undue pressure on the credit industry.
The firm said that many borrowers have been “cushioned” by low interest rates in recent times, but with several rises in the cost of borrowing, many will find themselves struggling to meet repayments.
Peter Wordsworth, from the firm, told Business Credit Management: “With already unprecedented levels of consumer debt, there is severe administrative and financial pressure on the lending industry to manage the high volume of IVAs.
“The lending industry needs to take action now and get their house in order to ensure that the impact is not felt too heavily on the bottom line.”
According to the Department of Trade & Industry, there were 29,804 personal insolvencies in the last three months of 2006 a 44 per cent rise compared with the corresponding period in 2005.