Much has been written recently about the dire state of personal finances in the UK, but figures recently released by the Insolvency Service have shown that it may not be as bad as all the doom and gloom merchants are predicting.

Their latest report shows that the number of individual insolvencies in England and Wales actually fell during 2007 when compared to the previous year. A total of 106,645 insolvencies were recorded last year, 0.6% lower than in 2006.

Although the total number of insolvencies has reduced, that doesn't show the full picture; bankruptcy orders recorded during 2007 numbered 64,480, representing an increase of 2.4% on the previous year, but Individual Voluntary Agreements (IVAs) were down 4.9% to 42,165 compared to 2006.

Significantly the number of insolvencies in the final quarter of 2007 fell dramatically when compared to the same period in the previous year. However, these figures represent only a slight respite as accountancy firm Price Waterhouse is predicting that 2008 will be a record year for insolvencies.

They are predicting an increase in credit card debt as homeowners struggle to cope with higher interest rates and resort to spending on cards in the short term. They have also identified a backlog of insolvency cases, which could account for the significantly reduced number recorded in the last quarter of 2007.

Although credit card debt fell during 2007 - as did the number of insolvencies - Price Waterhouse experts believe that trend will reverse as customers over-borrow and become unable to pay back their debt. They also point to an on-going dispute between banks and insolvency practitioners over fee discussions involving Individual Voluntary Arrangements (IVAs), which has resulted in a hold-up in processing the applications.

Price Waterhouse also point out that fairly flat interest rates in previous years kept insolvency figures fairly low, but following the five bank rate increases many mortgage holders now face the spectre of massively increased mortgage repayments as their fixed-rate deals expire. That in turn will lead to many homeowners being over-extended on their debt burden, and they may find getting a cheaper replacement mortgage extremely difficult.

Because of the credit crunch many applicants who will attempt to secure a remortgage or debt consolidation loan in an attempt to solve their debt problems will find that the market has changed. Lenders have severely tightened their criteria and as a result many more applicants are being turned down for cheaper deals.

That denial of further credit combined with an inability of homeowners to meet their current repayments is what the Price Waterhouse experts believe will ultimately lead to a record number of insolvencies during 2008.

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