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Should we be doing more to help those that cannot afford the cost to go bankrupt?

Wednesday, 29th April 2015

093-bankrupt-businessman

Is it so surprising that bankruptcy numbers are down again? Is it because fewer people are running into trouble? In my book the answer to both questions is no.

As noted in my article from 2012 with the Daily Mirror ‘The people that are too poor to go bankrupt’ based on research completed at that time reveals that nearly half of those for whom bankruptcy is the only option are simply too poor and do not have the money to pursue it.

Bankruptcy numbers fall after the 2010 increase in fees

The cost for a consumer to petition their own bankruptcy has increased by 37% since June 2010 and in England and Wales currently stands at £705 per individual.

See from the table below that in 2009 (the year before the increase in fees) the number of those going bankrupt was near the 75,000 mark and that the number for 2014 has dropped to just over 20,000. 

 

Year Total Bankruptcies IVAs DROs
2009 134,142 74,670 47,641 1,831
2010 135,089 59,194 50,716 25,179
2011 119,850 41,845 49,056 28,949
2012 109,477 31,756 46,714 31,027
2013 101,049* 24,536* 48,967* 27,546*
2014** 99,196** 20,318 52,190 26,688
2015*** 20,826 4,209 10,405 6,213

    
* For the first time in 2013 there were more DROs than bankruptcies.  

** Figures for the whole of 2014

*** Figures for first quarter of 2015

You can see the full list of all the consumer insolvencies since records began back in 1960 here Insolvency figures since 1960

The impact of Debt Relief Orders (DROs)

Among other factors, bankruptcy numbers have been affected by DROs which were introduced in April 2009. However many debtors wanting one have been excluded because of the outdated and unrealistic qualifying procedure set over 11 years ago. The good news is that, subject to Parliamentary scrutiny, major changes are expected to come into force in October this year which are expected to see DRO numbers increase by around 3,000 a year. Read more here  

The high cost to go bankrupt in England, Wales & Northern Ireland compared to Scotland

In England & Wales the cost is £705 per individual, made up of a court fee of £180 and an Official Receiver’s fee of £525. In Northern Ireland, there is a standard fee of £647 and this is made up of a court fee of £115, an Official Receiver’s fee of £525 and a solicitor’s fee of £7. As in England and Wales, if you’re on a low income or receive benefits, you may be exempt from paying the court fee.

Meanwhile in Scotland the cost is just £200 meaning that it is 3.5 times more expensive to go bankrupt in England & Wales than in Scotland!

The cost to the government when someone goes bankrupt

It costs on average £1,715 to administer a straightforward consumer bankruptcy case in England & Wales, part of which cost is met by the Official Receiver’s (OR) fee of £525. I’m told that if the OR’s deposit were to be waived in its entirety, all the costs of case administration would have to be met from other sources, namely the tax payer.

Those that can will pay during their bankruptcy

Bankrupts in England & Wales are assessed to see if they can contribute towards the cost to administer their case under an Income Payment Agreement (IPA), a legally binding written agreement between the bankrupt and the Official Receiver. When possible the initial payments will cover the cost of the administration of the bankruptcy order. Such an agreement usually runs for three years and any surplus funds after clearing the administrative costs are distributed to the creditors. Over the past three years 15,448 bankrupts were signed up for an IPA. (Source The Insolvency Service.)

And more money from the Nil Tax Code

Also, subject to the timing of the petition, an individual going bankrupt and in receipt of an income receives a tax code which diverts their income tax to the Official Receiver towards the administration costs, for up to 12 months.

Another important point is that many recovering bankrupts rejoin the ranks of tax and National Insurance payers and contribute to the income stream.

So why is it so expensive to go bankrupt and why is there not more support for the honest person who has no other option than bankruptcy?

Free help with the bankruptcy forms

Why pay a firm up to £1,000 for help with the bankruptcy forms?

Find how to complete the forms for free -  Free Guide to Filling Out The Bankruptcy Forms

 

 

 

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