Insolvencies in England and Wales have reached their highest level since records began in 1960, it was revealed yesterday. The rise has been fuelled by the take-up of debt relief orders, a streamlined form of bankruptcy for the poorest borrowers.

The Insolvency Service said that the number of individual insolvencies had risen by 6.2 per cent to 35,242 in the three months to September, compared to the previous quarter, and were 28.2 per cent higher than the same period last year.

Louise Brittain, a partner in Deloitte’s Contentious Insolvency Group, said: “These figures are overwhelming, but not surprising, and unfortunately the end is not in sight.”

The continuing steep rise has led to predictions of a record-breaking year, with 130,000 people expected to succumb to the weight of their debts, according to Deloitte, the accountancy. Yet there was a glimmer of hope, with the figures showing a slowing-down in the rate of increase in insolvencies. Between March and June, they had jumped by 9.3 per cent compared with the previous quarter.

The number of personal bankruptcies across England and Wales also fell by 3 per cent on a quarterly basis to 18,347.

Howard Archer, of IHS Global Insight, said: “It is highly likely that individual insolvencies will continue to rise for some time to come ... Unemployment has already risen substantially and is likely to climb significantly, many people are suffering wage freezes or even cuts, debt levels have risen and credit conditions remain very tight.”

The number of borrowers applying for debt relief orders — the new form of bankruptcy that came into force in April — more than doubled to 4,505 in the third quarter. Debtors who owe less than £15,000 and have financial assets worth no more than £300 can declare themselves bankrupt for a fee of £90, rather than the usual £510. Under the order, a borrower would be debt-free in a year.

Malcolm Hurlston, chairman of the Consumer Credit Counselling Service (CCCS), a debt charity, said: “Many people who would previously have been unable to afford to go bankrupt are able to choose insolvency with the new debt relief orders.”

Meanwhile, economists cautiously welcomed news that company liquidations had fallen by 4.7 per cent in the last quarter, to a total of 4,716 in England and Wales. Jonathon Land, a partner at PricewaterhouseCoopers, said: “While we are finally seeing a tail-off to the huge numbers of insolvencies this recession has brought, they still remain at unprecedented levels.”

Economists said that rising economic activity was unlikely to be strong enough to stop more companies from going out of business, but much would depend on the improvement in credit markets over the coming months.

Debt becomes a vicious circle

Case study

Carrie Dixon, from Lincolnshire, is applying for a debt relief order after racking up £10,000 in unpaid council tax bills and accounts taken out with a former partner. The couple owed thousands of pounds for overdrafts, credit cards and catalogue accounts.

The 26-year-old, who is not working at present, called National Debtline, the debt charity, six months ago after facing repeated attempts by bailiffs sent by her local council to recover £800.

Miss Dixon, who has a seven-year-old son, said: “I found myself in a situation where everyone wanted money that I didn’t have. More charges were being added all the time, making it even harder to clear the debt.”

The debt relief order required her to list all her income and outgoings. To apply for an order, she would need to have assets of less than £300 and no disposable income. The debt is cleared after a year. If Miss Dixon’s financial situation improves, she will be expected to pay off some of her debt.

She said: “It is such a huge weight off my shoulders. It will be a hard year but I can’t wait to get back to normal. I am never going to borrow money again. I’m always going to save up now if I ever need anything. It just isn’t worth it.”

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