40 Scots a day will be made bankrupt in 2014 according to accountants and business advisers BDO LLP.
The firm is predicting that just under 15,000 Scots will have been sequestrated (the Scottish term for bankruptcy) or taken out a Protected Trust Deed (PTD) by the end of 2013 and that a similar figure will go bust by the end of 2014.
Rising utility bills, higher food costs and frozen wages have all meant that many indebted individuals are unable to clear debts but are simply paying interest. Any change in their circumstances either through unemployment or divorce will mean that these individuals are unable to cope and will quickly succumb to bankruptcy. These so called 'zombie' individuals are living with long term accumulated debts but cannot repay any of the capital.
Bryan Jackson, business restructuring partner with BDO LLP, explains:
"There are signs that the economy is beginning to recover and that the six year period in the economic doldrums is coming to an end. However, for many individuals debts which were accumulated years ago continue to plague them and they are extremely susceptible to any changes in their personal circumstances.
"A reduction in overtime payments or increases in living costs can tip these individuals over the edge. They may then use payday loans to cover themselves in the short term but the debts will simply accumulate and eventually they will be made bankrupt."
"Although the number of Scots being made bankrupt has reduced in the last few years from a peak of 23,500 in 2009 it has settled at a disturbingly high level. Prior to 2008 a figure of 15,000 Scots a year being bankrupted would have seemed outrageous but we have got used to a very high level of personal insolvency since the recession began and seem to accept these numbers as the inevitable consequence of the economic downturn.
"Worryingly many businesses are in a similar situation simply paying interest on debts which are never reduced. A rise in interest rates, reduced income, or a change in the marketplace and these businesses will collapse. About 20 businesses a week will have gone bust during 2013 and I would expect a similar figure or perhaps even higher for the coming year."
"Whilst it is welcome news that the economy is recovering there remain a high number of individuals and businesses who remain in a critical condition financially. If, as is widely predicted, interest rates start to increase sooner than expected I believe we will suddenly see a spike in the levels of personal and corporate insolvency in Scotland."