The process of bankruptcy may have been streamlined, but it does not amount to a pain-free option for debtors. The best option for a financially troubled consumer or business person remains to consider entering into an individual voluntary arrangement (IVA).
Latest figures show that consumer debt rose by £43bn during February alone, of which £25bn was accounted for by mortgage lending and the rest by loans, overdrafts and credit card commitments.
That consumer borrowing is continuing to rise, despite recent rate rises, is certain to worry the Bank of England’s monetary policy committee when it next meets this month, and further rate rises look certain to follow.
The figures also cause concern for levels of personal insolvency. In 2003, personal bankruptcies rose to over 36,000, a rise of 6,000, or 20%, over the previous year. And as of last week, we now have a new bankruptcy regime that, on the face of it at least, makes the process of entering into and getting out of bankruptcy easier than ever before.
Under this new regime, a bankrupt may be discharged within a maximum of 12 months. If the official receiver considers that there is no need to further investigate an individual bankrupt’s circumstances, discharge can follow within months of the order being made.
But individuals should be extremely wary of the popular notion that bankruptcy has become a soft option, and a painless way of resolving debt problems.
It remains the case under the new regime that a bankrupt will have to surrender control of most of his property and assets to the official receiver or trustee. The official receiver or trustee will decide how much of the bankrupt’s income he may keep for his own reasonable purposes, and how much should be channelled towards meeting the claims of creditors.
Although many of the old automatic bankruptcy restrictions have been abolished, we now have a more focused approach. It means that individual bankrupts can be subject to extended restrictions for up to 15 years after their discharge, if their actions prior to and during their bankruptcy are considered to warrant such treatment.
By virtue of these restrictions, the most ‘irresponsible’ bankrupts could be barred from obtaining any material credit for years after their discharge from the actual bankruptcy. This is, of course, aside from any consequences that may follow for a bankrupt’s credit rating or personal standing.
Changes to the way bankrupts’ homes are treated mean that, under the new regime, it may be more rather than less likely that the trustee will seek to sell the bankrupt’s interest in her home. This is because the law now sets a time limit of three years from the date of the bankruptcy order, by which time the trustee must make a decision as to whether or not to sell the interest. Being time pressured in this way will invariably serve to concentrate the minds of trustees.