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More than a third of people who become insolvent are "spendaholics" who frittered away their money on luxuries, debt experts said yesterday.
W3 Debt Solutions, a company that prepares Individual Voluntary Arrangements for those struggling with debt, said that 34 per cent of the cases it sees are triggered by people spending money on frivolities.
Greg Mullarkey, of W3, said that clients he was seeing had squandered their cash on landscape gardening, home furnishings and holidays.
ARTILCE TWO
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After Bank Governor warns of ticking social timebomb, experts attack cultural change, say Edmund Conway and Rosie Murray-West
There are few economic experts out there who hold as much sway as the Bank of England Governor.
So when Mervyn King warned on Wednesday that spiralling levels of personal debt are now "a potentially large social problem", households were bound to sit up and listen.
The Bank devoted an unprecedented amount of space in its closely watched quarterly Inflation Report to the recent jump in bankruptcies, and Mr King also pointed to a sharp rise in the number of calls for help to the National Debt Line.
His comments are prompting questions about whether the record build-up in debt is now simply a fact of life or whether it is, ultimately, unsustainable.
Similarly, have bankruptcy and high levels of debt become socially acceptable?
Household debt has reached an all-time high of just under £1,200bn. Although credit card and overdraft debts have fallen slightly in recent months, this has been more than balanced by the continued rise in mortgage debt.
More than 105,000 people called the National Debt Line between January and April, a rise of more than 30pc on last year, although chief executive Paul Mullins said the helpline had been so "inundated" with callers that it had been able to deal with only 32,000 cases.
Figures from the Insolvency Service last week revealed that 23,351 people became insolvent in the first three months of the year - the highest quarterly increase since records began in 1960.
Particularly popular was a new type of scheme called an Individual Voluntary Arrangement. This allows debtors to repay a proportion of their debts while keeping control of their assets. There was a 142pc rise in the number of IVAs in the first quarter.
Typical bankruptcies also now last for less than a year and rarely involve losing a home.
Louise Brittan, head of insolvency at Baker Tilly, said that becoming bankrupt had become "a bit of a joke, frankly" for people.
"People think it's OK not to pay off their debts," she said. "This is only going to get worse. What we have here is a cultural change.
"The Government is making a lot of money out of bankruptcy," she added, pointing to the profits made by the Official Receiver as more and more insolvencies are processed. However, Mr King said the jump in insolvencies could not be attributed solely to the change in the bankruptcy laws.
The Inflation Report said that bankruptcies had also accelerated in Scotland and Northern Ireland, where there had not been changes in the regime.
Mr King has for a long time been regarded as something of a debt hawk, so his comments about the risks posed by higher levels of debt are not a complete surprise. It is also important to examine the context in which Mr King made his statement.
Asked to what extent he was worried about mounting bankruptcies, he said the evidence suggested that these were not massively denting consumer spending and, as such, were not a specifically economic problem.
But, he added, insofar as they affect a number of people profoundly, they are an increasingly significant social problem.
A spokesman for the Consumer Credit Counselling Service (CCCS) said: "The Governor's comments are quite practical and reasonable. We couldn't disagree with anything he is saying.
"The calls to our debt line are up but that is not necessarily a sign of more people getting into debt. It could also be a good sign of more people getting help.
"While there is no evidence of more people getting into debt, for those that are, the crisis is getting worse because they are now owing more than £30,000 each."
Much of the evidence highlights a growing generational split between different types of debtors.
The average caller to the CCCS is in their late 20s or early 30s, usually complaining about having mismanaged their credit.
The numbers of people in the 18-29 age bracket are rising rapidly, up from 7.9pc of bankrupts in 2001 to 18.7pc today. This age group is expected to suffer increasing problems in the coming years as those affected by university tuition fees attempt to get on to the housing ladder.
Analysts also cite the fact that few of the younger generation have experienced a consumer crash first-hand so may be less circumspect about taking on new financial commitments.
All the same, it is possible to argue that the debt bubble is not overinflated, according to John Butler, UK economist at HSBC.
"One is the fact that real interest rates are low and that we're not going to return to high interest rates of the past, so the debt-servicing burden is going to be low," he said. "Debt is also more widely available."
However, he warned that the two triggers to greater debt - higher interest rates and rising unemployment - seemed more of a potent threat.
