Personal insolvencies in England and Wales have surged to their highest level in 40 years, figures have shown.
Excessive borrowing has caused a surge in insolvencies
The Department of Trade and Industry (DTI) said 8,740 people were made bankrupt in the three months to June - up 29% on the same period in 2003.
Company insolvencies fell 17% over the same period, the DTI said.
Experts said the rise in personal bankruptcies may reflect recent interest rate rises, which have made loan repayments more expensive.
Soaring personal debt - which broke through the £1 trillion barrier at the end of July - and rising interest rates are proving a heavy burden for consumers, said accountancy firm PricewaterhouseCoopers (PWC).
"Record personal insolvency figures reveal the pressures on people who have borrowed to the extremes and are struggling to repay their debt," said PWC's Patrick Boyden.
"Many are now turning to insolvency procedures."
Robert Pick, a personal insolvency specialist at Grant Thornton, added that insolvencies have now reached "epidemic" proportions.
He argued that the reason for the jump "rest squarely on excessive consumer borrowing."
But he added that the introduction early this year of the new Enterprise Act, which makes bankruptcy proceedings less onerous, may have had an effect.
"Part of the increase is likely to be as a result of a number of individuals delaying their bankruptcy procedures to take advantage of the Act, and specifically the reduction in the discharge period to one year," Mr Pick said.
However, the DTI figures also showed a rise in the number of people entering into individual voluntary arrangements (IVA), an alternative to bankruptcy.
An IVA allows interest on a person's debts to be frozen in exchange for them paying back a regular amount each month for the period of the agreement.
A total of 2,475 consumers took out IVAs during the three months to the end of June - up 9% on the first three months of the year, and more than 27% higher than the same period in 2003.
"Although the figures for individual insolvencies have increased, it is clear people are seeking to deal with their debt problems outside bankruptcy, as the number of IVAs has also risen," Insolvency Service inspector general Desmond Flynn said.
"This is an indication that many over-indebted individuals are making responsible choices when dealing with their financial difficulties," he added.
Experts claim that if current levels of bankruptcy continue, more than 40,000 people will become insolvent in England and Wales this year.
But while the Enterprise Act was blamed by many experts for the rise in personal insolvencies, the DTI said the legislation had helped reduce corporate bankruptcies.
During the first six months of 2004, just 7,771 firms became insolvent in England and Wales - the lowest figure since 1998.
"We are seeing fewer businesses struggling as a benign economic climate sets in, and companies are able to make use of vibrant private equity and lending markets," said PWC Business Recovery Services partner David Hargrave.
"The trend towards administrations shows its increasing acceptance among stakeholders as the favoured restructuring tool."
Experts explained that the new act gives companies greater flexibility to restructure.
Firms flocked to this mode of survival in the three months to June, with a 135% rise in the number of companies entering into administration - a process which protects them from creditors.
Meanwhile, the number of firms in receivership - where a lender seeks out the best deal for creditors - fell 33% over the same period.