The happy delusions of the live-now-pay-later culture lie shattered in the latest insolvency figures. The 14.5% increase in the number of Scots being declared bankrupt between 2006 and 2007, however, is likely to be a harbinger of worse to come. The scale of the situation is brought home by the fact that the 1563 Scots declared bankrupt in the last quarter of 2007 amounted to nearly twice the average number for any three-month period three or four years ago.

This is a reflection of the record levels of personal debt (one estimate of Britain's debt from credit cards, loans, overdrafts and mortgages is £1.35 trillion) but when that level of borrowing collides with the current credit crunch, these personal disasters will be multiplied. That is expected to happen later this year as fixed-rate mortgages reach the end of their term and require to be renewed, with lenders imposing higher rates to reflect the overall increase in interest rates since August 2006.

In addition to the general credit tightening, a change to the law in Scotland is likely to increase the number of bankruptcies. From April, an individual who is declared bankrupt (or sequestrated in Scottish legal terms) can be discharged after one year instead of the current three-year period, making it a more attractive proposition; indeed, some accountants predict that it will open the floodgates.

There can be no doubt that the tide of debt is rising alarmingly. Home repossessions leaped by 30% in the first six months of last year and householders in Scotland cannot necessarily rely on the relative stability of the housing market north of the border to protect them from the perils of negative equity. Both Motherwell and central Glasgow have been pinpointed as high-risk areas on the latest map produced by the credit reference agency Experian.

Although it is traditionally people on the lowest incomes who get into debt they cannot repay, the boom in consumer credit, fuelled by rising house prices, has brought many middle-class families to the point where they are only a couple of pay packets away from not being able to meet their repayments. It only takes one setback, such as their marriage ending or losing their job, to plunge them into unmanageable debt. With Scottish companies failing at a rate of approximately 55 per month and the Financial Services Authority describing 840,000 mortgages as a cause for concern, the outlook is particularly grim.

Economic growth built on rising levels of consumer spending was stable as long as it was mainly secured on the rising value of houses, but the trend towards more unsecured debt is in danger of undermining the whole edifice. In recent years, financial institutions, in the heat of commercial competition, and consumers, sometimes unwary of the pitfalls in heavy borrowing, have too often lost sight of the basic principles: that lenders must ensure that borrowers are likely to have the means to repay their debt, and that borrowers should be aware of the consequences of overstretching their budgets.