Bankruptcy Moves Online

The 6th of April saw the next big change in Bankruptcy Rules since the change in the required minimum debt level from £750 to £5,000 back in October last year. This latest change means when you will no longer have to go to court to apply for your own bankruptcy (a debtor’s petition) – instead, the process (including paying by installments) has moved online. Creditors’ petitions for bankruptcy still however have to go through the court process.

One of the main reasons for this change appears to be removing workload for an already stretched legal system. With many closures of County Courts, Magistrates Courts and Crown Courts becoming reality; a much leaner and more efficient court system will become essential.

Many believe that individuals are 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 the effect of the change will be interesting. It is too soon to see if it will lead to more people declaring themselves bankrupt but feedback since the launch of the online facility would suggest that individuals seem to prefer the idea of going on line rather than having to turn up at court, avoiding the hassle and the embarrassment. It is also slightly cheaper. The “court fee” has been replaced by the “adjudicator’s fee” which means the total cost goes from £705 to £655.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 will continue to effect the number of bankruptcies is 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 suggested that the actual number of bankruptcies could be much higher than figures suggest as there are many bankruptcies and IVA’s currently “disguised” in the thousands of unsuitable debt management plans that currently exist.

Until now 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.

Overtime as the new system beds in we shall be able to determine the effect of these changes in the meantime we may get a clearer picture when the insolvency statistics are published in August.