Loan sharking and money lending is on the increase as tighter controls on Credit Unions force people to find alternative sources of cash.
The shock claim was made at a major conference of the State-funded agency that helps people in debt.
The Money Advice and Budgeting Service (Mabs) National Management Forum conference was told of the emergence of a new wave of back-street money lending.
A keynote speaker at the conference, Professor Jackie McCoy, from the University of Ulster Business Institute, told the Sunday Independent that the failure to resolve the weight of personal debt meant loan sharking was "making a major comeback; it is an invidious and growing trend''.
Professor McCoy also warned that "increasing restrictions on credit unions where they are so tightly governed there is no discretion for lending means increasingly the only option is the money lender'.'
She added: "Credit unions are gathering evidence on this, the problem though is that money lending is not illegal."
And concern is escalating within Mabs over the efficiency of the Government's new Insolvency Service, set up in March of this year.
The chairperson of the Citizens' Information Board, Sylda Langford, also claimed: "People are holding back because they are afraid, that's a personal view."
One delegate, Tim Ryan from the Mid-West region, noted of the Government's 'flagship' scheme that "the advice most people are being given is wait and see, don't be the first, don't be a guinea pig''.
Mr Ryan also warned that those availing of insolvency "may end up in more trouble because they will not have the capacity to borrow more than €600, what are they to do if something goes wrong with the car for example''.
What, he asked, "will happen if they cannot go to the credit union or bank for a loan? Their options are utterly limited".
He warned: "A lot of people are burying their heads in the sand, hoping insolvency will be a silver bullet, but it could be a cyanide pill."
Owen Hillery, from the South East Region also said "the new Insolvency Service may be well meaning, but they are not aware of the situation on the ground''.
Responding to concerns from delegates about "rumours that there are problems with the legislation with the definition of debt'', Colette Bennett, project development manager from Mabs, confirmed the "uptake has been less than expected".
She added that the complexity of the scheme meant "there is a trickle effect, the debtor has to gather a substantial amount of information before meeting a debt intermediary, there is a fear element''.
Joe Power, a Waterford delegate, also warned the conference that the "Government's proposals to phase out mortgage interest supplements, that keep people in their homes, if that is gone there will be a serious problem''.
Earlier this month, it emerged that the Insolvency Service of Ireland had received more than 6,000 phone calls and emails.
By the end of September, the ISI said it had received just over 4,700 calls to its helpline and a further 1,600 emails.
Its website has received nearly 85,000 visits since the agency opened in September.
The agency said it would not be providing a breakdown just yet of the number of applications for debt relief from struggling borrowers to protect their confidentiality.
It said it had approved 50 personal insolvency practitioners to assist those dealing with the service.