The Government has published a consultation document on proposed reforms to the bankruptcy process, particularly benefiting over-indebted individuals who wish to take the step of making themselves bankrupt.
The overwhelming majority (about 84%) of bankruptcy petitions which are dealt with by the courts are presented by debtors, as opposed to creditors enforcing their debts. Currently, individuals who wish to be made bankrupt are required to complete a set of forms and take them, in person, to their local county court with insolvency jurisdiction (not all county courts can deal with insolvency matters), together with the appropriate fee (currently £510, part of which may be remitted for those with particularly serious financial difficulties).
The court then allocates a date for the petition to be heard by a judge. Commonly, the delay between presenting the petition and the hearing is between one and two months, and there are cases of it being even longer. The Government’s proposal is to take the court out of the process, introducing in its place a purely administrative function. Rather than waiting for available court time, the debtor will simply complete a form on-line (although a paper alternative will be available) and a “Decision Maker” appointed by the Secretary of State will consider the application. The Decision Maker will than have two working days in which to make “rigorous checks” of the information provided to make sure that the debtor meets the criteria for bankruptcy, and then inform the applicant of his decision.
Thereafter the bankruptcy will proceed in the same way as at present. These proposals have been prompted by the explosive growth in the number of debtor petitions over the last few years, the consequent pressure on the resources of the courts and the knock-on impact on other court users.
At the same time, Government policy is to reduce the stigma of bankruptcy, and research shows that debtors view the need to attend court as contributing to that stigma.
The Government is also proposing to remove, in all bankruptcies, the Official Receiver’s discretion to allow early discharge, that is, before 12-months have elapsed from the date of the bankruptcy order.
The proposals can only be implemented by an amendment to the Insolvency Act 1986, and so can only be made when Parliamentary time allows. Broadly speaking, we welcome these proposed reforms, which are aimed at speeding up access and reducing stress on those who need the protection of bankruptcy. However, we are concerned that debtors should have access to advice about the full range of alternatives which may be available to them before embarking on the process, and that they should fully understand the consequences of bankruptcy. Removing the human interface from the process worries us. Furthermore, bankruptcy is, and should be seen to be, a very serious matter and the last resort for those with unmanageable levels of debt.
The proposals are contained in a consultation document called Reforming Debtor Petition Bankruptcy and Early Discharge From Bankruptcy. The consultation period closes on 8 February 2010.
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