Business Editor John Duckers looks at the reasons behind the rise in the number of people going bankrupt...
The court system is creaking, according to R3, the Association of Business Recovery Professionals.
The warning follows last week's statistics from the Department of Trade & Industry which showed there were 17,562 individual insolvencies in England and Wales in the last quarter, a rise of 46 per cent on the same period last year.
And there were 3,389 company liquidations in the third quarter of 2005, a rise of 14.2 per cent on the same period a year ago.
R3 claims the courts and the Official Receiver's Office are struggling to cope with the spiralling volume of bankruptcy applications.
The organisation says it is now taking an average of two weeks to get a court application in most parts of the country - a process that used to be completed within days or, at most, a week. In some areas, for example Northampton, the wait is up to six weeks and has even been know to stretch to eight weeks outside the Midlands.
Business recovery expert and Midlands region chairman of R3, Louise Pheasant, of Eversheds in Birmingham, said: "You cannot stop bailiffs going in until a court order is signed. Therefore any court delays are penalising families and they are losing all but the most basic domestic goods. Yet if a bankruptcy order had been signed immediately, they would keep their personal possessions.
"Losing everything will make it harder for individuals to pick up their lives and pay off some of their debts. If someone has a job then it is usually better to let them earn and pay off their debts than to put them and their family out of their home."
R3 is also concerned that dishonest bankrupts are going unnoticed.
Ms Pheasant said: "The Official Receiver's Office is now processing so many bankruptcy orders that the interview process is becoming perfunctory.
"At this pace, it will be difficult to spot if someone has deliberately given away their assets before going bankrupt."
Against the rising insolvency levels, the rate of increase in consumer debt is at last slowing. R3 says that people are starting to pay off their debts rather than spend more, and this is affecting high street spending. It will also have a knock-on effect with businesses.
R3 says that if businesses are struggling, there is a lot that can be done to help rescue them.
"There is a great deal of private equity around," said Ms Pheasant. "Provided a business can show it has a clear plan and is addressing issues, there is a real willingness for venture capitalists to invest in recovery programmes. Insolvency practitioners can help a business to identify and focus on its key drivers and put together a winning funding proposal."
Dennis Turner, chief economist of HSBC Bank, cautioned: "Businesses are in for a rough ride over the next 12 months, but it will stop short of a recession."
Jon Moulton, managing partner of Alchemy, the private equity firm which once tried to buy Rover, said rescues had been made even harder because of the Pensions Act.
He said: "The Pensions Act has created some serious Catch 22s. The
more trouble you are in, the more levy you have to pay to the Pension Protection Fund; being either richer - or poorer - can result in a company having to pay more.
"Many companies will be kept in difficulties for years struggling to deal with historic pension deficits worsened by Government actions."
Lifestyle expectations and changes in bankruptcy laws are to blame for the personal insolvencies rise, according to insolvency expert Ian Gould of accountants and business advisers PKF in Birmingham
He said: "This further illustrates that consumer debt is unsustainably high.
"Lifestyle expectations have changed. Fifty years ago buying on credit was the exception and a last resort for many. Nowadays credit is so easy to obtain that people buy before considering whether they can afford to repay the debt and with little fear of what will happen if they cannot.
"The Enterprise Act of 2002 has made bankruptcy more of an option for many who would never have considered it before.
"Under the Act, those declaring themselves bankrupt can be discharged after one year rather than three. Although being declared bankrupt will never be a pleasant experience, 12 months is a comparatively small price to pay for the relief of wiping the debt slate clean."
He added that this high level of personal insolvency could have a negative impact on the whole economy as the debt did not just disappear. It had to be met by someone.
"Unpaid debt will impact on a wide range of sectors especially retail, property and banking."
He said people should think twice before getting another credit card, loan or overstretching themselves on their mortgage. If they are hit by unexpected events such as a relationship break down or the loss of a job they may find that their debt is no longer manageable.
Mr Gould said: "Any insolvency procedure will affect a person's future credit rating and they might find that their career is adversely hit. For example, many professional bodies do not permit membership if a person has been subject to a bankruptcy restriction order or undertaking."
Of the 17,562 personal insolvencies, 5,519 were Individual Voluntary Arrangements - an increase of 95 per cent on the corresponding quarter of the previous year.
Barry Stamp, joint managing director of checkmyfile.com, said this was "doubly curious" in the light of the recent relaxations in bankruptcy law brought about by the new Act.
"The intention was to encourage struggling entrepreneurs to press the reset button using the bankruptcy option. They would then be free to move on to new ventures, unencumbered by the stigma and restraints traditionally associated with bankruptcy.
"In theory, IVA's should have lost their attraction, but they are still very much in the ascendancy. False promises by some insolvency practitioners of a 'more invisible' option are often cited to us by debtors who subsequently query why IVA's appear on their credit files for six years, whether the arrangement is satisfied or not, wrecking any possibility of raising credit.
"The 'softer option' enables a debtor to retain their home only if those attending the meeting of creditors fail to challenge it. Claims that entrepreneurs may continue with 'business as usual' are quickly quashed when it is realised that current accounts must be kept strictly in credit.
"After six years of struggling to pay under a recently completed IVA, I witnessed a debtor paying very close to the amount due in final settlement. The reason was that, at the outset, creditors sought an amendment to the nominee's proposal that the arrangement was to be secured by a charge over the debtor's interest in the matrimonial home.
"The debtor expressed a view that if he had known the full implications of an IVA, he would have declared himself bankrupt from the start. And that was before bankruptcy became the real soft option - he'd have been clear and free within 12 months under current bankruptcy law. I suspect that's what most of those now seeking IVA's will say when they eventually realise the full implications of their choice."