According to the Insolvency Service, there has been a two-thirds increase in the amount of insolvencies in England and Wales in June compared to a year ago.
Figures reveal that there were 26,021 people who were declared insolvent in the second quarter of 2006, which in itself was a ten per cent increase on the previous quarter.
Such a startling rise in insolvencies comes as banks announce that the amount of bad debt they have encountered has also risen.
As people struggle to manage debt, they either file for bankruptcy, of which there were nearly 15,000, or turn to Individual Voluntary Arrangements (IVA).
IVAs are becoming more common as a means of insolvency as they allow debtors to clear their debt without many of the negative effects of bankruptcy.
Such is the popularity of IVAs as an alternative to bankruptcy that there was a 153 per cent increase in use on the previous year as people use this as a debt management solution.
ClearDebt announced its own insolvency figures, with predictions that the number of IVAs by the end of the year will total 44,000.
The debt resolution organisation is able to arrange an IVA with a debtor for debt worth £7,500, considerably less than the average within the industry which stands at £15,000 to £20,000.
David Mond, ClearDebt chief executive, commented: “These figures illustrate two very interesting issues. The first is that the growth rate of individual insolvencies remains exceptionally high, raising questions about society’s attitude to debt and the creditors’ risk management policies.
“The more significant issue is over the level of debt at which IVAs are offered. We believe that there is the potential for the total IVA market to increase to approx 80 000 cases, but there would have to be considerable changes within the IVA industry.”