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Is it good news to move consumer bankruptcy online and remove the court process?

Wednesday, 2nd September 2015

I welcome the proposed removal of the court based bankruptcy process as I feel it is an unnecessary requirement. An online procedure will reduce the stress and financial demands faced by already overstretched consumers and the time spent, especially by those living a distance from the courts, some of which only allow bankruptcy petitions by appointment and on certain days of the week. Some of my clients have not even been able to afford the cost of travel to get to their nearest court let alone the bankruptcy fee.

The consultation, in which I took part, also considered the removal of the court process for creditor led petitions, but there was understandable resistance to this as it would not be as straightforward as in consumer led cases.

The cost to administer a consumer’s bankruptcy Vs the fee

The last government increased the cost to go bankrupt by 40%  and currently stands at £525 for the Official Receiver’s fee with a £180 Court fee, total £705 which for many consumers  is outside their reach, whereas in Scotland the total cost is just £200.

It costs The Insolvency Service £1,725 to administer a straightforward consumer bankruptcy case and I know from my correspondence with the PM on this issue that he does not see the tax payer having to help out.

Why stop the advertising the name & address of bankrupt in the local newspaper?

Just under six years ago The Insolvency Service removed the requirement to advertise a bankrupt’s name, address and occupation in the local newspaper, unless the individual is uncooperative and it is necessary to gather information for the Official Receiver (OR) from the public.

However it is important to note that this move was not undertaken to relieve consumers' fears s should their neighbours find out about their situation, but merely to help reduce the cost of administering the bankruptcy through a reduction in advertising costs!

Barriers to going bankrupt

Clients tell me that the need to attend court and the old requirement to advertise name, address and occupation in the local newspaper were two of the biggest barriers that put consumers off from going bankrupt, so it is great news to  see both being removed. Another barrier was not being able to afford the travel costs to get to court to petition.

A big concern is how vulnerable people will manage the online procedure. I sincerely hope that they will get help and confirmation that bankruptcy is their only option through say the Citizens Advice who currently work very hard in assisting over stretched debtors, seeing on average 6,000 new debt cases every working day.

Will online bankruptcy increase the numbers going bust?

So are we to see an increase in the number petitioning? We may see a small increase as the fear of having to go into a court  is removed if self-petitioning. I still see the high fee as the major barrier suppressing numbers though, in my view affecting thousands.

There is an argument that if you make the bankruptcy procedure too easy then you risk some consumers just picking this route instead of contemplating paying back their creditors. The current threat of going to court can spur people on to propose an Individual Voluntary Arrangement (IVA) to their creditors instead. Bankruptcy is a serious move but for some people it is the only way of relieving them from debt that they can no longer administer.

It is worth noting that the last debtor's prison shut in 1879 and  society and culture has moved on, so must our attitudes to helping people with serous debt issues.

Read news article - Date set to go bankrupt on-line instead of going to court




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