Despite a small drop in the level of insolvencies in the latter part of last year, many industry experts have predicted that insolvency levels over this coming year will rocket, branding last year’s drop as simply ‘the calm before the storm’. Many had predicted that there would be a mass influx of people becoming insolvent during the first quarter of the year, and the number of insolvencies for the year was predicted at between 110,000 and 130,000.

Insolvency levels in the last quarter of 2007 fell by around 16.4% compared to the last quarter of 2006. However, a number of factors may result in insolvency levels rising steeply over the coming year. The Insolvency Service has states that there are more and more people that are now becoming insolvent on their own accord rather than on the advice of professionals, and many people have also found themselves in high levels of debt following the expensive Christmas period.

Other factors have been identified as contributing to the expected rise in insolvencies. The global credit crunch has wreaked havoc in the financial markets, and this had led to far tighter credit conditions that have made it difficult for consumers to get cheaper deals or refinance their debts. A number of living costs have also been rising, which has added further strain to household finances, and this includes increased petrol prices, rising energy costs, and high food prices.

One official stated: ‘We are forecasting small increases in unemployment as the economy slows, so we would expect the insolvency data to pick up over the course of 2008. There is also a risk that the effects of the credit crisis will exacerbate the magnitude of any future increases, as subprime borrowers struggle to refinance loans as they roll off more favourable deals.’

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