The number of people going bankrupt is expected to rise sharply in the next three years, according to a government report on personal debt.
Bankruptcy will be a headache for even more people
The Department of Trade and Industry (DTI) says the number of bankruptcies may nearly double, to reach 28,000 a quarter by March 2009.
And it warns that the problem could get much worse if there was a recession.
A record 26,000 people in England and Wales became insolvent in the second quarter of 2006, recent figures showed.
However, the government has denied that recent changes to the law have encouraged more people to declare themselves insolvent.
It says that despite media reports and anecdotal evidence, most prospective bankrupts are not aware that the Enterprise Act of 2002 has made it possible to exit bankruptcy after just one year rather than three.
The DTI report points out that the number of people with too much debt is small, but continuing to grow.
It highlights not only official bankruptcies but rising mortgage arrears, credit card debt, and the increased demand for the help of debt advice agencies.
According to recent research by the Financial Services Authority, 1.5 million people are failing to make credit card and other borrowing repayments on time.
Of these, half a million admit they are suffering "real financial problems".
On top of that, nearly three million more people say it is a constant struggle to keep up with their repayments.
The FSA pointed out that most people are bad at saving for a rainy day or making longer term savings, even though unexpected drops in income and sudden expenses are quite common.
As a result, the DTI warns that things could get worse if there was an unanticipated economic shock, such as a recession.
The Consumer Credit Counselling Service, one of the main debt advisory services, blamed the easy availability of credit cards for much of the rise in problem debt.
It said it had seen a sharp rise in credit card problems - especially for people aged between 53 and 59 - among clients asking for its help.