31st March 2016
Hot on the heels of a big change back on the 1st October 2015 where the minimum debt level required to go bankrupt was increased from £750 (where it had been since the introduction of the 1986 Insolvency Act) to £5,000, another big change will take effect on the 6th April 2016 when you will no longer have to go to court to apply for bankruptcy – instead, the process (including paying by instalments) will move online.
One of the key drivers for this change appears to be removing workload for an already stretched legal system. With County Court, Magistrates Court and Crown Court closures looming, it would appear sensible to remove as much workload as is practical in order to have a much leaner and more efficient court system – an admirable objective.
There appears to be a school of thought that believes there are many individuals put off going bankrupt because they are terrified of going to court, so this new process will improve accessibility. Bankruptcy numbers have been steadily declining year on year, especially since the introduction of Debt Relief Orders in April 2009, so it will be interesting to see what the effect (if any) this change has on those declaring themselves bankrupt. I believe a far more likely effect on bankruptcy numbers will be the ongoing scrutiny of the debt management sector by the FCA during the authorisation process (following their takeover of consumer credit regulation in April 2014) as it is widely believed that there are many bankruptcies and IVA’s currently “hiding” in the tens (or is that hundreds?) of thousands of debt management plans that currently exist – I guess all we can do is watch and wait and see how many other firms exit the industry and what the fallout will be.
Historically, debtors’ petitions for bankruptcy have been usually heard by County Court judges who make the determination whether the petitioner is legally insolvent and then grant the bankruptcy Order. This decision will now instead be made by an adjudicator within the Insolvency Service which raises some interesting questions. What qualifications will the adjudicator have and how does that compare with a county court judge? Could an adjudicator be open to creditor influence? What effect could this change have on the number of petitions rejected? It seems that these potential issues have already been addressed as the debtor has 14 days to request a review if the application is rejected – if the original decision is upheld, the debtor then has another 28 days to appeal to the court who could then decide to issue the Order.
As there was always an element of “court fee” in declaring yourself bankrupt, this has been replaced by the “adjudicator’s fee” which means the total cost goes from £705 to £655. Furthermore, the debtor can pay this fee in instalments (as little as £5), although the time allowed for these “instalment plans” will be reviewed in 12 months.
What about technophobes or those without access to a computer/internet? Those clever chaps and chapesses have thought of that too – in these extreme circumstances, the Insolvency Service will offer an appointment system to assist.
So, it strikes me that this had been well thought out and planned – let’s see how it works in practice. I remain quietly confident that all will go smoothly. Bring on the 6th April!
Please be advised that all views expressed in these posts are those of the author and not of James Rosa Associates ltd.