New online process sparks rise in bankruptcies

Changes to bankruptcy rules have sparked a boom in the number of people declaring themselves bankrupt, government figures suggest.

Some 24,251 people were declared insolvent throughout July, August and September in England and Wales, according to new figures from the Insolvency Service, which covered all forms of insolvency, including bankruptcy.

This marks a six per cent increase on the previous three months and a 19.3 per cent uplift on 2015’s third quarter.

It also means that in the first nine months of 2016, one in 515 adults in England and Wales became insolvent.

The Insolvency Service says this is down to new rules, introduced in April, that mean people facing unmanageable debts can now apply for bankruptcy online without having to attend court or hire a lawyer.

Without legal fees to worry about, the minimum cost of declaring bankruptcy can be £680, which covers an adjudicator fee of £130 and a £550 deposit.

The Insolvency Service says that the perceived stigma of court proceedings used to be a barrier to some bankruptcies. They add that 2016’s overall rise in insolvencies was driven by an increase in individual voluntary arrangements (IVAs), which were up 29 per cent year-on-year.

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Going bankrupt is one way of escaping overwhelming debt, but it isn’t always the only option, nor the most suitable. Bankruptcy ends after 12 months but there’s the high risk of losing all your assets, including your house, to pay creditors.

IVAs involve a deal being made between the individual and their creditors, which is overseen by an insolvency practitioner. They are preferable to full-blown bankruptcy because there is usually less chance of property loss, but it does involve paying some debts in one go.

The Insolvency Service says it is monitoring the impact of online bankruptcy applications and consolidation within the debt assistance sector to ensure the solutions are operating as intended.

Sarah Albon, the service’s chief executive, said: “Living with unsustainable debt is very distressing and it is important that people take action so that they move on with their lives.”

A statement from the Money Advice Trust, the charity that runs National Debtline, added that the steep increase in IVAs was a worrying consequence of the recent shake-up in the debt management market.

“We have concerns that poor regulation is resulting in unsuitable IVA products being sold to clients with low incomes,” the statement added.

“Given the economic uncertainty in the current climate, rising prices and the long-term trend of an increase in consumer credit, our concern remains for the minority of households that are struggling financially or are relying on credit to make ends meet.

“If this is not sustainable long-term, there may be trouble ahead. We are therefore urging all borrowers to take stock of their household finances now – and to seek free advice.”

By Joe White