Bankruptcies to soar as credit crunch bites
More and more borrowers are likely to go bust over the next year as lenders scrap cheap loan deals and remortgaging options, according to a new report out today.
Around one million Britons have accumulated unsecured debts of around £25,000 each, making a whopping £25bn in total, says debt management company TDX Group.
Around 400,000 managed to pay off old loans by either remortgaging or taking on a new credit card or personal loans last year.
But TDK estimates that some 600,000 people will file for bankruptcy this year or take out debt management plans or individual voluntary agreements (IVAs), double the number in 2007.
IVAs have grown in popularity over the past few years as they offer people an alternative to bankruptcy, allow money to be paid off over time and are not as damaging to credit ratings.
"For the vast majority of people this year, refinancing and remortgaging won't be available as a solution," said TDX boss Mark Onyett.
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"Their choice will be narrowed to bankruptcy, a debt-management plan or an IVA. You could see a doubling of IVAs."
Conditions for borrowers have grown worse as the credit crunch continues to force banks and building societies to tighten their lending criteria and make loans more expensive.
Onyett reckons many people are choosing the wrong options for solving debt issues, which leads to around 45% of those entering into an IVA not completing them. Some 15% fail in year one.
"This can leave the customer worse off because the fees paid to an IVA company vary from between 5,000 and 9,000 pounds - and these come from the debtor's repayments," he said.
"These issues need to be addressed urgently as we expect strong growth for the debt management market during 2008."
