The number of individual insolvencies in England and Wales soared by an annual 36.8% in the second quarter, official figures show.
Irresponsible lending is partly to blame for the surge in bankruptcies
The Department of Trade and Industry (DTI) said total individual insolvencies reached 15,394, the highest level since records began.
Of these, 4,199 were Individual Voluntary Arrangements (IVAs), a near 70% leap on the same period in 2004.
And 11,915 were individual bankruptcies, up 27.5% on a year ago.
This is the sixth consecutive quarterly increase in insolvencies and takes personal bankruptcies to over 40,000 a year for the first time.
The number of people who have become bankrupt or entered into an IVA in England and Wales in the last 12 months was 54,227.
Meanwhile, company liquidations rose 12.5% on the previous quarter to 3,342, the DTI figures showed - a rise of 6% on the year.
Analysts said Thursday's rate cut may provide modest relief to debtors but warned it may lead them to borrow more.
"This is something the Bank of England will need to keep a close eye on," said Howard Archer at Global Insight.
If current trends continue, annual bankruptcy rates could double, other analysts have warned.
"These figures do not paint a pretty picture," said Steve Treharne, head of personal insolvency at KPMG.
"Consumer lenders and individuals need to take stock of this black cloud of debt and act now to do something about it."
A series of interest rate rises between November 2003 and August last year - which pushed the cost of borrowing up to 4.75% - meant many British borrowers became shackled with even heavier debt burdens.
This led to consumer debt levels breaking through the £1 trillion mark for the first time in 2004.
Experts have argued that recent changes to bankruptcy laws have made people more willing to choose bankruptcy as a way of sorting out their finances.
Since April 2004 bankrupts in England and Wales have been able to come out of bankruptcy faster than previously as a result of changes in the law.
The introduction of Individual Voluntary Arrangements (IVAs) has also eased the burden for some people. IVAs are an alternative to bankruptcy which allows debtors to come to an agreement with their creditors.
"Interestingly, people that are struggling to cope with debt are increasingly choosing the IVA process as an alternative to bankruptcy" said Pat Boyden, partner in Business Recovery Services at PricewaterhouseCoopers.
"This shows that the stigma of bankruptcy is disappearing."
In the last year, 75% of all bankruptcies were people taking steps to have themselves declared bankrupt, the highest proportion ever seen.
And debtors are now able to file their bankruptcy petition online, making the process far simpler.
But despite this many people burdened by debt find they cannot afford the £500 fee required to go insolvent, the Citizens Advice Bureau (CAB) said.
"What we're seeing is a lot of people who can't afford to go bankrupt, but need to go bankrupt. They can't afford the fee," said CAB spokesman Dan Levene.
"This is a very worrying and quite quickly rising trend."