Bankruptcy Looms for Many

Posted 2008-01-2

High expenditures during the holiday season will lead an estimated 130,000 people to bankruptcy, according to accounting firm KPMG. The figure for 2007 was slightly less than 110,000.

Large credit card charges and increasing mortgage payments are adding to the problem.

KPMG expects that some people will be declared bankrupt, while others will complete Individual Voluntary Arrangements (IVA). People with an IVA repay a part of their debt to credit card companies and banks and are able to start anew with a clear financial record.

Many people currently facing financial disaster will attempt to transfer debt to low-interest credit cards or consolidate their loans. Tighter lending standards, however, may force them into insolvency.

In the past, people have found it very easy to borrow more money by taking out a second mortgage on their homes, obtaining a consolidation loan, or getting another credit card, according to KPMG’s Mark Sands. For many, these tactics have been a life-saver.

Mr. Sands expects that access to these products will be limited in the future. He reports that credit card companies are rejecting nearly half of the applications they receive, an increase of 30 percent from pre-crunch days.

High interest rates and the expiration of fixed-rate mortgages have contributed to peoples’ debt burden, says Mr. Sands. These people are now faced with ballooning payments that add an additional £400 to £1,390 per month on a £150,000 loan.

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