More people set to seek debt solutions

LONDON (Reuters) - The number of Britons bogged down in debt is expected to rise this year as banks tighten the rules for people seeking to borrow their way out of trouble.

There could be a more than 20 percent rise this year in the number of people with around 50,000 pounds worth of debt who narrowly avoid bankruptcy by setting up court-backed repayment agreements called Individual Voluntary Arrangements (IVA), according to TDX Group.

Of the 400,000 people in the UK who look for solutions to their financial problems each year many more will have to resort to IVAs in 2008, said TDX, the intermediary in around 80 percent of approximately 40,000 IVAs set up in 2007.

That's because consumers are no longer able to borrow their way out of trouble since banks have tightened their belts after the credit crisis and on fears of a fall in house prices.

"We expect in the second quarter through to the end of 2008 we'll see an increase (in IVAs) in the order of 10-20 percent but depending on how the economy plays out it could be more," said Mark Sanders, UK Managing Director of TDX Group.

Personal insolvencies in England and Wales numbered 24,846 in the last three months of the year, down 3.9 percent on the third quarter and 16.4 percent lower than a year previously, official figures showed on Friday.

That left the overall 2007 total of people declaring themselves insolvent just below the previous year's record level of 106,645.

"We are forecasting small increases in unemployment as the economy slows, so we would expect the insolvency data to pick up over the course of 2008," said George Johns, an economist at Barclays Capital.

"There is also a risk that the effects of the credit crisis will exacerbate the magnitude of any future increases, as subprime borrowers struggle to refinance loans as they roll off more favourable deals."

The Insolvency Service said company liquidations fell 2.1 percent on the year, but were slightly higher on the previous quarter -- coming in a 3,135 in the final quarter of 2007.