The number of people declared insolvent rose for the first time in more than a year during the first quarter, Government figures have revealed.
A total of 25,264 people in England and Wales went insolvent during the period, a rise of 1.7% compared with the previous three months, the Insolvency Service said.
The figure, which is seasonally adjusted and rounded down, was made up of 15,651 people who went bankrupt and 9,614 people who took out an Individual Voluntary Arrangement (IVA).
The increase ends a run of four consecutive quarters in which the number of people going insolvent had fallen.
But while the numbers are rising again, they are still 13.2% lower than they were during the first quarter of 2007 and the lowest figure since the beginning of 2006.
Bankruptcies remained broadly level during the three months, increasing by just 0.1% compared with the previous quarter, while they are 6.8% below the level for the corresponding three months of 2007.
But IVAs, under which interest on debt is frozen in return for a set amount being repaid each month, jumped by 4.3% compared with the end of 2007.
IVA numbers were depressed during 2007 due to a long-running dispute between creditors and IVA providers over whether the agreements were always appropriate for consumers.
The issue was resolved earlier this year, but the problem led to around one in six IVA applications being rejected by creditors during 2007.
Today’s higher figures suggest that the new protocol has been successful, and IVA levels are likely to continue increasing going forward.
But even though the number of people taking out an IVA has risen quarter-on-quarter, the total is still 22% below the figure for the first three months of 2007.
The vast majority of people going bankrupt during the first quarter initiated the process themselves, with 84% of petitions being made by debtors, compared with just 53% for the whole of 1998.
Charles Turner, director in the business recovery services practice at PricewaterhouseCoopers, warned that personal insolvency figures were becoming too high to be sustainable over the long-term for the UK economy.
He said: "During the last major downturn in the early 1990s bankruptcy and IVA figures peaked at an annual total of 36,000, while we are now seeing them level out at over 100,000 a year - a number which is likely to grow in current economic conditions."
He added that unsecured borrowing has increased by a further £4.6 billion during the first quarter, suggesting that consumers were continuing to borrow to fund lifestyles they could not afford, rather than cut back.
He said: "It is a function of the credit crunch because people aren’t able to remortgage so easily, and so they have opted for unsecured borrowing.
"Inevitably if you have rising unsecured debt, there will be problems for some people and they will go into insolvency."