A THIRD of people who go insolvent during the first three months of the year will have been tipped over the edge by excessive Christmas spending, an accountancy firm has predicted.

Grant Thornton estimates that 28,000 people will be unable to cope with their debts during the first three months of 2008, and will either file for bankruptcy or take out an individual voluntary arrangement.

It expects a total of 120,000 people to go insolvent during this year, the equivalent of 10,000 people a month.

This would beat its predictions for 110,000 insolvencies for 2007, and also be ahead of figures for 2006, when the number of people going insolvent broke through the 100,000 barrier for the first time to reach 107,288.

Head of Grant Thornton's personal insolvency practice Mike Gerrard said: "Sadly, many individuals spend up on credit at Christmas and pay no heed to the financial warning bells.

"Come January, they find themselves in a situation where previous financial woes are compounded by the bills arriving from the festive season and in these situations insolvency becomes the only way out."

He expects insolvency figures for the first quarter of 2008 to be slightly below ones for the same period of the previous year, but he predicts numbers will rise again as banks tighten their lending criteria, the housing market continues to slow down and consumers face higher food and fuel bills.

He said the recent quarter point cut in interest rates would do little in the short-term to help people who were having problems keeping up with their debts after the frequent increases in rates seen during the past two years.

He added that the situation was also likely to be further exacerbated for the 1.4 million people who were expected to come off low, fixed-rate mortgages in 2008 and had to face much higher repayment rates.

The group said the steady increase in the cost of living was taking its toll on people whose finances were already stretched to the limit.

It said the cost of filling up a car with unleaded petrol had increased by 16 per cent during the past 12 months, while gas and electricity prices are expected to jump by a further 10 per cent.

Mr Gerrard added: "I believe personal insolvency numbers will move forward at a much faster pace than anticipated.

"While they may settle down before next Christmas, they will do so having edged closer to a total of 120,000 personal insolvencies for 2008 - 10,000 a month.

"With the credit crunch yet to fully bite, there are simply not the conditions in place to expect a drop."