There are fears that the debt crisis might be about to escalate again, despite the recent drop in the number of personal insolvencies.
According to Debt Advice Foundation, the country is experiencing the 'calm before the storm' and predicts that the number of people facing insolvency could soar by 20% once the fallout from the Government's spending review becomes apparent.
With speculation suggesting that around 500,000 jobs could be lost in the public sector by 2014, the debt charity says that although personal insolvency figures have now fallen for two quarters in a row, the country is still sitting on a financial time bomb.
"Although 2010 has seen a reduction in the number of people becoming insolvent, the prospect of half a million public sector jobs being cut with little hope of the private sector picking up the slack, unfortunately means that the worst could be yet to come," said David Rodger, managing director of Debt Advice Foundation.
With the recession hitting businesses and individuals hard, last year witnessed the highest number of personal insolvencies on record.
Debt advice specialists such as Debt Free Direct, which offers free and impartial advice to those with debt problems, were inundated with queries from concerned individuals.
However, despite the recent respite, it is feared that the potential job losses which will result from the spending review could push insolvency levels to an all-time high.
"Although insolvency volumes are the product of a number of contributory factors, unemployment, particularly new unemployment, is a key determinant," added Mr Rodger.
"If the predicted spending cuts go ahead, we could see insolvencies rise to in excess of 40,000 per quarter, which is 20% higher than present levels."
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