Banks and credit card companies in Scotland are suffering the most from new legislation covering personal insolvencies, it has been claimed.

At the start of April, the new rules came into effect, allowing people on low income and with low-value assets to declare themselves bankrupt without any legal action being taken against them.

This move has been largely attributed to the soaring number of insolvencies seen over the past few months, with the Accountant in Bankruptcy service reporting that, over the first quarter of the financial year, there were 4,735 cases approved, an increase of 35.4% on the same three month period in 2007.

However, this trend is bad news for Scottish lenders, it has been argued, with a backlog of insolvency cases likely to impact upon the financial sector until well into 2009.

"Primarily, banks are going to feel the effect of this because the vast majority of debts are owed to them, although these people may also have store cards," David Hunter, the head of business recovery and insolvency at Campbell Dallas chartered accountants, explained to the Scotsman.

"We're not sure at this stage if there will be an effect on small businesses, but there may be some effect."