Insolvency Service Proposals for Bankruptcy Reform

November 2009

The Insolvency Service published a consultation document on 13 November 2009 about Debtor Bankruptcy Petition Reform and Early Discharge from Bankruptcy.

Designed to create an efficient process for people where other forms of debt relief are simply not appropriate, enabling the individual to apply for their own bankruptcy without going through the court, leading debt solutions provider, EuroDebt believes this could be an important step for those facing serious financial difficulties.

"The proposed process would reduce the time between presenting their bankruptcy petition and the bankruptcy order being made" explains Kevin Still, Director, EuroDebt. "And this will mean that those in serious financial trouble could start to resolve their situation quicker than is currently the case. It should also reduce the burden on courts.

"The bankruptcy figures over the last two years have remained fairly constant with regard to the proportion of bankruptcies where it is the debtor that petitioned for their own bankruptcy. This figure stands at around 87% of all bankruptcies in England & Wales. IVAs remain slightly more popular in terms of formal debt solutions. However, Debt Management Plans [DMPs] dwarf these figures.

"If the delays at the court are reduced then this will be a major step forward, though we will wait to see whether the new process is less costly for consumers with unmanageable debt problems."

It is expected that the cost of making an application for bankruptcy under the new proposals would be less than the current court fee. At present, a debtor who applies for bankruptcy has to pay to the court a total of £510, comprising a court fee of £150 and a £360 deposit as security for the payment of the Official Receiver's administration fee. However, around 21,500 debtor applications received full or partial fee remissions in 2008-2009 amounting to £3 million. These remissions will not apply under the proposed regime.

The Insolvency Services is also proposing that the provision that allows early discharge in less than one year after bankruptcy should be repealed. Unless the discharge period is suspended by the court, automatic discharge would occur on the first anniversary after bankruptcy.

The consultation closes on 8 February 2010.

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