US and UK to revamp bankruptcy rules

Record bankruptcies have prompted the US to tighten personal bankruptcy rules
for first time in a generation, while at the same time the UK has set more
lenient rules with small debts to be written off.

US bankruptcy filings in 2005 have soared to a record 9,000 a day, 50% up on
the previous year, and as a result the government is setting tougher rules on

Previously, US debtors could choose whether to give creditors access either
to their assets or to their surplus income but under new rules, a judge will
decide which applies.

It is likely that this would affect well-paid young professionals who, having
accumulated few assets, had in the past been able to shelter their future
earnings from their creditors.

In a statement KPMG said that in the future young professionals would be
‘forced to make some of their future income available to meet their debts,
perhaps as part of a five-year repayment plan’.

Meanwhile in the UK, where bankruptcy rates have also reached a record of
40,000 per year, the Insolvency Service has been consulting on possible
alternatives to bankruptcy, which are likely to be implemented by April 2007.

As well as the present alternative, which is to go into an individual
voluntary arrangements (which allows a debtor to negotiate a settlement with
creditors), debtors with neither assets nor surplus income will be able to have
small amounts of debt (about £15,000 or less) written off.

Steve Treharne, head of personal insolvency at KPMG said: ‘I believe that
even if the proposed changes do go ahead on this side of the Atlantic, the UK
personal insolvency laws will still represent a hasher regime than that in the
US. In the UK both assets and surplus income can be used to repay debts, unlike
in the US where an element of choice will remain.’

‘The government consultation in the UK has thrown up some interesting issues.
The plans, to further simplify and demystify personal insolvency for those owing
relatively small amounts of debt and whose financial affairs are
straightforward, are to be welcomed. But some fear that the proposed changes
will make it too easy to avoid paying back debt.

‘In my view, the changes will introduce options that are proportionate to the
needs of those in financial difficulty whilst still exploring their ability to
pay and, where some form of repayment is practicable, ensuring that this

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