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Scots facing a Christmas debt crisis as bankruptcies reach 14,000

LINDSAY MCINTOSH()

THE number of Scots being declared bankrupt has soared by 12 per cent over the past year - and experts warn that the current credit crunch means things will become much worse.

New government figures show there were almost 14,000 applications for sequestration - the term for bankruptcy north of the Border - over the last year.

Last night, financial experts said some people - without giving enough thought to the implications - might be convinced to apply for bankruptcy by relatively unregulated debt consolidation firms like those that advertise on daytime television.

And they warned the underlying problems are much worse than the figures suggest and there is "a dam waiting to burst". They urged Scots to exercise caution in the run-up to Christmas to avoid becoming another statistic in the new year.

Although the numbers have been relatively stable over the past quarter, it was claimed last night that this was simply the "calm before the storm".

An analysis of the Insolvency Service figures, which run for the 12 months up to 30 September, shows there were 649 more people bankrupted this year than last.

There is a drop of 5 per cent in insolvencies in England, where there is the option of an IVA - an agreement between debtors and creditors which is equivalent to bankruptcy.

However, creditors are becoming less keen to get involved with these, meaning the option is not open to as many people.

The trust deed system in Scotland, which is the closest equivalent, has not put creditors off to the same extent.

Matt Henderson a partner with Johnston Carmichael, said homeowners coming out of fixed-rate mortgages were finding themselves hit with payments double those they had signed up to. And credit card companies were upping their charges on withdrawing cash, which was compounding the interest rate rise.

Mr Henderson warned there was worse to come as people attempted to tighten their belts before "falling off the edge".

He also said that some Scots could be applying for sequestration after contacting less reputable firms, without realising the consequences of being labelled bankrupt.

He said: "I think it's much too easy and this is a very, very serious step to take. The danger is people think it's not that bad after all."

John Hall, chief executive of the personal debt solutions provider newtomorrow.com, said the figures were unsurprising, adding that "the underlying position is much worse than the figures suggest".

He said: "There is a dam waiting to burst and the cracks are starting to appear.

"This is a stark message that people need to be realistic about what they can and can't afford; especially as we are approaching Christmas and people feel under pressure to splash out on presents."

Bankrupt, blacklisted and named in Edinburgh Gazette

SEQUESTRATION starts when a debtor is "apparently insolvent" and is unable to settle a demand for payment.

The creditor or the debtor can then petition for sequestration.

In the first case, the debtor has until the date set for sequestration to pay the debt and associated charges.

If he is petitioning for his own bankruptcy, it is awarded on the day he turns up at court to pay the fee. He will meet a trustee and divulge information about his assets and debts. Any value will be realised for the benefit of creditors.

For the next three years, the undischarged bankrupt must reveal his status if he wants to borrow more than 250.

He cannot be a director of a limited company, a Justice of the Peace, a Member of Parliament or a member of a school board.

The details of every debtor are published in the Edinburgh Gazette. After three years - in Scotland - his status is discharged, but he will be credit blacklisted for another three.