Scottish bankruptcies up by 162%

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The number of people declaring themselves bankrupt in Scotland is up 162% on the same period last year.

Accountant in Bankruptcy figures show there were 4,055 bankruptcies in the second quarter of this year, an increase of 42% from the last quarter.

The increase follows laws passed in April making it easier for people on low incomes to become bankrupt.

The report also found the number of companies entering liquidation increased by 30% in the last quarter.

A total of 289 Scottish businesses entered liquidation or receivership, an increase of 43% on the same period a year ago.

The statistics cover insolvencies recorded up until the end of September.

There were 5,998 individual insolvencies, including Protected Trust Deeds (PTD), an increase of 27% on the previous quarter and 70% on the same period in the previous year.

As well as dealing with the difficulties of bankruptcy we need to deal with the problem of irresponsible lending. Kenny MacAskillJustice Secretary

The increase in bankruptcies has been attributed to the Bankruptcy and Diligence Act (2007) which came into effect this year.

It allows individuals to register with the official Accountant in Bankruptcy and have their financial problems addressed, without having to wait for a creditor to pursue legal action against them.

Of the 3,047 debtor applications received by the Accountant in Bankruptcy in the second quarter, 2773 had met the 'Low Income, Low Asset' (LILA) criteria outlined by the Act.

Justice Secretary Kenny MacAskill said the figures reflected the changes in the law but more needed to be done to stop individuals falling into unmanageable debt.

He said: "We always expected a high level of applications when LILA started, given that the advice sector previously reported large numbers of clients waiting for its introduction.

"But we also need to be able to protect our people in relation to consumer credit. To do this we need to have the levers of power. As well as dealing with the difficulties of bankruptcy we need to deal with the problem of irresponsible lending.

"Consumer credit is currently reserved and we require action to be taken to protect people from the harsh winds that may be blowing. There must be a maximum rate for lending and there must be a requirement for responsible lending."

'Won't pay'

The figures, published by the Scottish Government follow a marked jump in insolvencies in the first quarter of the financial year from April to June.

The statistics prompted the Institute of Chartered Accountants of Scotland (ICAS) to warn that the new bankruptcy laws should not be seen as a soft touch.

It said only people who genuinely could not pay back their creditors should be allowed to declare themselves bankrupt.

Bruce Cartwright, convener of the ICAS insolvency committee, said: "Since the new law, we have seen a large volume of individuals who we believe can be categorised as 'can't pay'.

"However, over the next year there is a danger that the 'can pay, won't pay' group will also seek to take advantage of what may appear to some to be an easy option to avoid paying creditors.

"We would urge those involved in regulating the process to ensure that the proper resources, checks and balances are in place to ensure that the new legislation is used only by those who genuinely need it."