The number of people registered as insolvent or bankrupt increased to nearly 110,000 last year.

People with debts as low as £750 can find themselves facing a bankruptcy petition by a creditor, or can choose to petition to be declared bankrupt.

Once a person is declared bankrupt, all assets including any home come under the control of the Official Receiver, other than low-value items, tools and equipment needed to run a business, clothing, furniture and basic household items. A person cannot then hold public offices; cannot conduct business in any name other than that under which he was made bankrupt; and cannot form a company without the court's permission.

No existing bank, building card or credit cards can be used. New ones can be opened but the person must declare his bankrupt status and a bank can impose restrictions. A bankruptcy may remain on credit agency files for six years. A person may also be subject to an interim payments order to pay off debts by instalments.

A bankrupt can now be discharged after one year. This stems from a reform to the law introduced by Peter Mandelson when he was at the Department of Trade and Industry. That prompted a surge in informal voluntary arrangements, a kind of negotiated settlement that falls short of bankruptcy and often allows the person to remain in his property. The idea was to lessen the shame of bankruptcy.

The Becoming Bankrupt website says: “Once viewed with suspicion, avoided at all costs and associated with social stigma, bankruptcy is increasingly becoming the solution of choice for many people looking for a release from debt.”

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