Britain's huge debt crisis |
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Published
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Fri, 29 Dec 2006 11:20
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LONDON - The UK is in the throes of a massive debt crisis, which has forced creditors to write off £1.4 billion worth of bad debts, according to a new report by accountants KPMG. The reason for this is the fact that a large number of people have signed up for Individual Voluntary Arrangements (IVAs).
The report also revealed that 110,000 people became bankrupt in 2006 as opposed to 100,000 last year. On an average, an individual entering into IVA owes £52,000. He/She can pay only about 39 percent of the outstanding debt, the report added.
"Typically the sorts of debts we have seen being dealt with by IVAs in 2006 are personal loans, credit card balances and other forms of 'buy now, pay later' unsecured loans," said Steve Treharne of KPMG. "Most of the money is borrowed to meet current expenditure - including lifestyle items such as holidays - rather than to acquire assets or to fund a business."
Ever since the government allowed people to enter into IVAs to sort out their financial mess, the number of insolvencies in the UK has declined. However this has meant that even people as young as 21 are running up massive debts, which are at least three times their annual incomes.
KPMG said that in 2006 at least 3,000 people owing £100,000 made an IVA. Several people including banks have raised concern over the widespread use of the IVA, but marketing strategies are ensuring that consumers find them attractive.
While there is no government regulation at the moment, there are several steps that have ensured that IVAs do not become a fertile ground for fraudsters. "It is essential that all involved continue open dialogue about the solutions which are to be offered to the increasing number of consumers struggling to manage their debts," Mr Treharne said.
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Insolvencies rise to record levels in second quarter 