Bankruptcy Rates to Increase

Posted 2008-01-2

KPMG estimates that 130,000 people will declare bankruptcy as a result of overspending during the holidays, increasing mortgage payments, and unmanageable credit card bills. This figure is 20,000 higher than 2007, which saw approximately 110,000 people declare bankruptcy.

 

The increase in those declaring bankruptcy reflects the decreasing ability to transfer loans from one institution to another; previously, borrowing money and receiving extra credit, even for those who already had credit issues, was relatively easy compared to now. Mark Sands, of KPMG explained that people could turn to consolidated loans, second mortgages, and credit cards for assistance. Now, he explains, these options will not be there for many people, as credit institutions tighten their lending practices. In addition to the credit crisis, people are suffering from increasing mortgage rates, as many fixed-rate mortgages are expiring.

What will happen to these 130,000 people in 2008? They will be forced to either declare bankruptcy or take out an Individual Voluntary Arrangements (IVA’s), through which they repay a portion of their debts and are then allowed to start again with a clean slate.  

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