A RECORD number of Scots declared themselves insolvent in the three months to June, but experts believe that the number might be the tip of the iceberg.
There were 4,735 Scottish personal insolvencies over the period, the Department of Trade and Industry said yesterday, after 3,275 in the first quarter.
The figure included 2,853 sequestrations (bankruptcies) and 1,882 protected trust deeds. The t
otal was a 35.6 per cent increase on the same quarter in 2007, compared with an 8.3 per cent fall over the same period in England and Wales.
The rise in Scottish personal insolvencies is due primarily to legislation introduced on 1 April making it easier for people to declare themselves bankrupt.
Under the new rules for people with low income and low assets, the bankruptcy process was opened up to those who previously had no means of obtaining relief from their debts. Matt Henderson, business recovery and insolvency partner at Scottish chartered accountants Johnston Carmichael, said 1,709 Scots took advantage of the change in the first three months.
At the same time, Scottish bankruptcy laws were brought in line with those south of the Border as the discharge period – the minimum time an individual has to serve as a bankrupt – was cut from three years to one.
The rules were changed to encourage entrepreneurs back into the economy, but Henderson said they had been used by overstretched consumers. "There were huge increases in England and Wales when they reduced the discharge period in 2004 because it made the process less fearsome. My worry is that more people with debt problems will be attracted to writing off debts in this way as they hear about the new easier access to the bankruptcy process."
But the real effect of these changes and the impact of the credit crunch will not be evident in Scotland's bankruptcy numbers for at least a year, Henderson warned.
"This was the first quarter in which people were able to use the new rules, but the credit crunch is not factored in yet because the problem is managed by other means, some of which are becoming more scarce," said Henderson. "The full effect will not be seen until at least spring 2009."
The full article contains 386 words and appears in The Scotsman newspaper.
