The Insolvency Service issues proposals for Bankrupcy reform

The Insolvency Service published a consultation document on 13 November 2009 about Debtor Bankruptcy Petition Reform and Early Discharge from Bankruptcy. The primary proposals build upon earlier principles of removing the court as the route for debtors into bankruptcy and replacing it with an administrative process. They are also propose removing the facility for the Official Receiver to grant early discharge in less than one year.

"...delays could be upwards of 3 months with some of the busier courts."

The intention is to create an efficient process for people where other forms of debt relief are simply not appropriate, where an individual can apply for their own bankruptcy without going through the court reducing the time between presenting their bankruptcy petition and the bankruptcy order being made. This follows rising numbers of people seeking to petition for their own bankruptcy and significant delays arising at the courts in dealing with this demand. The Insolvency Service determined that delays could be upwards of 3 months with some of the busier courts.

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 proposals ... are intended to help ... by reducing the time ... before they are granted bankruptcy."

The Insolvency Services are also proposing that the provision that allows early discharge in less than one year after bankruptcy should be repealed.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 proposals for reforming debtors' access to bankruptcy are intended to help indebted consumers by reducing the time that those with unmanageable levels of debt may have to wait before they are granted bankruptcy, and should also reduce burdens on courts.

The consultation closes on 8 February 2010.

"... we will wait and see whether the new process is less costly for consumers with unmanageable debt problems."

Kevin Still, Director of debt solution provider Atlantic Financial Management, commented: "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. 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 and see whether the new process is less costly for consumers with unmanageable debt problems."