Rising insolvencies highlight “massive puzzle”

Mr Butler said that there was conflicting evidence to explain the 23,300 personal insolvencies witnessed in the first three months of 2006.

He pointed towards “a lot of complete opposites happening”, such as mortgage arrears rising while the property market prospers and people being unwilling to use loans to fund consumer spending but happy enough to apply for mortgages.

He added that a rise in unemployment and the cost of utility bills showed “people are heavily indebted”, but that changes to make bankruptcy a more attractive option were too recent to be reflected in the insolvency trend.

However, David Mond, chief executive of ClearDebt, commented: “This isn’t the puzzle it seems. Very many of the people that come to us for debt advice have been offered massive amounts of credit which they have taken quite responsibly, secure in the calculations they have made that they can afford to repay.”

He added that a change in life circumstances, such as a partnership breaking up or a couple having children, was not being taken into account by debtors or the credit industry.

“People rarely seem to predict big changes in their lifestyle. 23,000 insolvencies is a drop in the ocean of over-indebtedness but it’s only a puzzle if you treat people as numbers in a spreadsheet rather than individuals with lives to lead,” Mr Mond concluded.

With so many people suffering from debt problems, Mr Butler confidently concluded that “rates will be on hold for a long period of time”.