There is likely to be in increase in the number of people applying for individual voluntary arrangements (IVAs) in 2008 as people are feeling squeezed by the economic situation, an expert has warned.

Chris Tapp, director of financial education charity Credit Action, said: "I certainly think it’s likely that we’ll see an increase in the number of people who are seeking that sort of solution, because they’re exerting real pressure on their finances."

Recent research published by accountancy firm Grant Thornton predicted 10,000 individuals a month will become insolvent in 2008, whether by IVA or bankruptcy.

It warned that during the first three months of the year, a third of all such insolvency will be as a result of excessive Christmas spending.

The government created IVAs to provide an alternative to bankruptcy as they allow the debtor to retain important assets such as their home.

IVAs are set up through the courts and allow struggling borrowers to become debt-free within a set period of time, usually five years.