Experts warn record numbers of people could go bankrupt in 2008 as financial fears deepen

Accountants KPMG said tighter lending criteria and a Christmas spending blitz meant more than 130,000 borrowers were likely to enter into Individual Voluntary Arrangements (IVAs) or be declared bankrupt in 2008.

That would be up from the total of just under 110,000 expected this year in England and Wales, a rise of 19 per cent.

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KPMG said its research showed around 43,000 people used the IVA route to write off a portion of their debts in 2007.

Another 67,000 people were declared bankrupt during the year, swelling the total number of personal insolvencies to the highest ever level.

The firm's research showed the average IVA debtor owed £50,300, with more than 2,500 people owing more than £100,000.

Mark Sands, KPMG's personal insolvency director, said: "This high average level of debt clearly indicates that too many people have borrowings that they have no realistic hope of repaying.

"Any excessive spending over Christmas and at the New Year sales, especially where goods are paid for on credit, risks tipping even more consumers over the edge.

"The credit crunch is resulting in increased rejections of credit card applications and a reduction in the availability of loans secured by a second charge on the family home.

"Those in difficulty will find that their options are becoming limited - formal insolvency will for many be the only way out."

This year, £1.3 billion of bad debts were written off by creditors because of people taking the IVA route, compared to £1.4 billion in 2006.

KPMG said lenders were getting increasingly concerned about the numbers of people turning to IVAs - in which borrowers agree to pay a certain amount of the debt back before it is written off.

This was shown by the fact that 17 per cent of people had their arrangement turned down by creditors in 2007, compared with 15 per cent in 2006.

Mr Sands added: "Lending institutions have over the past year raised concerns as to the potential misuse of IVAs, where perhaps they are being recommended when they are not the most appropriate solution.

"It remains essential that all involved continue open dialogue about the wide variety of solutions which are available to the increasing number of consumers struggling to manage their debts."