The number of people being made bankrupt hit an all-time high during the last three months of 2008, as the country's worst recession in three decades left thousands of individuals unable to pay their debts.

The number of companies being forced into administration also more than tripled during the quarter, as businesses struggled to refinance loans and raise necessary new capital.

The statistics reaffirmed the bleak state of Britain's economy, with economists and politicians predicting that the numbers were likely to rise even further over the coming year.

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The increase in the number of people declaring themselves insolvent was particularly high in Scotland and Northern Ireland – jumping 75 and 39 per cent respectively in the final quarter of 2008, compared to the same period a year ago. In England and Wales, there was an 18.5 per cent jump in personal insolvencies. In total, 35,694 people declared themselves insolvent across the UK during the quarter.

"While the substantial cuts in interest rates by the Bank of England will obviously help some people, they are likely to be insufficient to save many from insolvency," said Howard Archer, the chief UK economist for Global Insight, the financial consultants.

"The many people who had to stretch themselves to the absolute limit to get into the housing market in recent years are particularly vulnerable. Obviously the more that house prices fall, the more people will be trapped with negative equity. And it is those people with the weakest credit ratings that are being hardest hit by tighter lending conditions and more punitive terms."

Of the personal insolvencies in England and Wales, around two-thirds were accounted for by full bankruptcy declarations, while the remainder were Individual Voluntary Arrangements (IVAs) – agreements which allow consumers to write down a proportion of their debts without having to suffer the full consequences of bankruptcy.

Debt management agencies expressed concern about the faster growth in bankruptcies, claiming that too many people considered them "a quick fix". Bev Budsworth, an insolvency practitioner for the Debt Advisor, said the profile of those claiming for bankruptcy was also changing.

"We are increasingly being approached by high net worth individuals from the City, that have accrued large mortgages and outstanding debt and, due to losing their job, are struggling to meet all their repayments – even if their partner is still earning," she says. "These people are not receiving the help and support they need as household income is just above the threshold for various state benefits, even though they have paid substantial amounts of contributions for most of their lives. Increasingly, these people are not meeting repayments and perceive bankruptcy as the only way out."

Nick O'Reilly, the president of insolvency professionals' trade body R3, added: "What today's figures mean is that in 2008 we saw a staggering 350 people becoming insolvent in the UK every day. For 2009 our members believe this number will reach in excess of 430 people a day for the whole of the UK. The outlook is bleak for the next two years, when insolvency practitioners expect to see in excess of 158,000 personal insolvencies annually. We'll start to see the knock-on effects of increasing business failures and redundancies on personal financial situations."

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The effect of the slowdown on businesses was particularly severe in the fourth quarter, with some 4,600 companies being liquidated in England and Wales during the period – an increase of more than 51 per cent on the final quarter of 2007, and the largest number for 15 years. Meanwhile, more than 2,000 companies were forced into administration during the period, up 251 per cent on the same quarter a year ago.

"This shows that the banking crisis has spilled over into the real economy, forcing thousands of people and businesses to the wall," said Vince Cable, the Liberal Democrat Treasury spokesman. "We are now paying the price for a credit bubble which Gordon Brown allowed to soar hopelessly out of control. With Britain facing a worsening recession, the number of bankruptcies may well get considerably worse before it gets better. It is critical that the Government concentrates on creating new jobs and sorting out the banks so they restart lending to solvent businesses and individuals."

Bankruptcy: What it means

*Is bankruptcy an easy option?

It is not difficult to declare yourself bankrupt – anyone can make a petition to the local court – but you would be wrong to think it's an easy way out of your debts. If your petition is accepted and you're declared bankrupt you'll find it very difficult to get credit. You'll also find it harder to secure somewhere to live, as private landlords may be unwilling to accept tenants who have been bankrupt.

*But will I be free of all my debts?

Not necessarily. If your application for bankruptcy is accepted, most of your remaining assets will be sold off, with the proceeds distributed to your creditors. Any shortfall will then be written off. However, some debts – such as student loans and child support payments – are excluded from bankruptcy orders, so these debts won't be cancelled.

*How long does bankruptcy last?

Usually for one year, during which you will have to abide by certain rules. The bankruptcy will remain on your credit file for another six years.

*What are the alternatives to bankruptcy?

A popular alternative is an Individual Voluntary Arrangement (IVA), which allows you to write down some of your debts, and to consolidate the remainder into one monthly payment.

James Daley Personal Finance Editor