Scots going bust outstrip the UK and the worst is yet to come, says Trust Deed Scotland

New figures released yesterday by the Government's Insolvency Service shows there was a drop of just 1.1% in the number of sequestrations in Scotland between April and June, compared to 12.2% in England and Wales. This stark discrepancy between bankruptcy levels means that the rate of personal insolvencies is now 0.37% of the Scottish population while England and Wales is only 0.23%.

Many believe the change in legislation last year has prompted more people to take the sequestration route than ordinarily would due to the ease at which it can now be done, but others believe there are other forces at work. Bryan Jackson, corporate recovery partner at PKF, says: "Scotland is much more dependent upon the public sector for employment which could, in part, explain why there are an increasing number of bankruptcies. Given that redundancies in the public sector have only just begun this does not bode well for reducing the number of personal insolvencies in the future."

Scotland's greater dependency on small employers, hit harder during the downturn, is also behind the country's rising insolvency levels.

"The second quarter figures show record numbers of corporate failures, predominantly among smaller firms, and the effect of such closures is often personal insolvency for the owners and employees in such firms," said Bryan.

A spokesperson for Trust Deed Scotland believes the worst is yet to come: "Public sector job cuts are by no means over yet. We haven't felt the full impact of the Government's austerity scheme, and Scotland seems to be lagging behind the rest of the UK by about a year. Combined with low wages, rising utility, food and fuel prices, and the fall-out from that will be more sequestrations and personal insolvencies through Trust Deeds and Debt Arrangement Schemes. The Accountant in Bankruptcy's figures last month showed us that personal insolvencies have shot up in Scotland by nearly 25% compared to only 1.2% south of the Border."

Besides public sector cuts and rising living expenses, the problem is being compounded by the number of people who are turning to payday loans to make ends meet.

"Payday loans are making a bad problem much worse by encouraging people to borrow yet more money instead of biting the bullet and addressing their financial difficulties," said the spokesperson. "With some payday loans with APRs of over 4,000%, any failure to keep up with the payments will see that individual sinking deeper into debt every day. By the time they finally do approach an Insolvency Practitioner for help, they could many more thousands of pounds in debt – mostly from interest and charges - than they were had they never taken the loans at all."

"Some of our clients who have approached us for advice and help about Scottish Trust Deeds have seen their payday loans of £600 or £700 suddenly spiral in a matter of a couple of months into £3000 debts which they can no longer service the payments on."

"The speed at which debt can get out of control with these loans is frightening," concluded the spokesperson.