Is it too easy to go bankrupt? | The Independent

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Debt Relief Orders and Individual Voluntary Arrangements – the number of these two emergency debt management measures increased last year as consumers grappled with the realities of personal borrowing levels beginning much like they were before the last financial crash.

It does, however, mean that personal bankruptcy levels are falling as debtors seek alternatives to this action down the line.

But now steps have been taken to make bankruptcy easier than ever, leaving in their wake worries about the risks of jaded borrowing for a whole new generation of consumers.

Easier insolvency

Until recently, if a debtor wanted to petition for bankruptcy, they had to go to the local county court, complete a petition, complete forms in triplicate, and then appear before a judge. They would also have to pay significant fees up front.

However, this was reformed last year and now distressed debtors can simply apply online. They can also choose to pay the £680 fee in installments, making bankruptcy more affordable than in the past.

Something that is likely to make an even bigger difference is that bankruptcy applicants no longer have to appear in person before a judge; instead, their claim is handled by an arbitrator working for the Insolvency Service.

Security barriers

Some critics of the new system have expressed concern that it would make bankruptcy too easy to achieve or even that without a judge’s review it would be easy for malicious fraudsters to disrupt people’s finances.

However, Simon Underwood, a partner and disaster recovery specialist at accounting firm Menzies LLP, says those concerns have proven unfounded: going bankrupt without access to advice.

“While these concerns were reasonable, none turned out to be a problem. The online method of bankruptcy filing has been beneficial to users and the judiciary. For people in financial difficulty, the ability to file for bankruptcy online is much easier and less stressful than having to wait weeks to attend a court hearing. This can make a huge difference to an individual’s well-being; minimize any disruption to their personal life and help them move on faster.

“The online method has also helped reduce pressure on the justice system.”

Anti stress

Moreover, the benefits of the simplified application system go beyond reducing the demand for hearing time or allowing bankrupts to stagger costs. They also reduce the potential impact on the applicant’s mental health. Debt is a well-known trigger for anxiety and depression, and in the past the bankruptcy filing process was potentially very stressful.

Stephen Young, restructuring and insolvency lawyer at Keystone Law, says: “What the reforms have done is make the bankruptcy filing process more efficient and user-friendly.

“Under the old regime, it was necessary for the debtor to complete a certain number of paper forms in triplicate. In addition, court costs also had to be paid in one go [in cash] which in itself is difficult if you are in financial difficulty.

“People who have to consider bankruptcy are very likely to be very anxious and very likely to suffer from stress. Removing the need to physically appear in court will help mitigate this, given that appearing in court can be daunting. In addition, making it an online procedure now without a paper form and giving the debtor the possibility of paying court costs in installments helps.

Bankruptcy Myths

For some troubled debtors, especially those who don’t have many assets like a home, bankruptcy may be the best option for their money worries.

Although the process has been simplified, there are a number of persistent myths surrounding bankruptcy that can still discourage people even when it is an appropriate option for their problematic debt.

For example, many people believe that if they go bankrupt they will be published in their local newspaper, but this is no longer the case unless it is an exceptional situation. Also, it is a common misconception that bankruptcy lasts forever, when in fact most bankrupts are discharged after 12 months.

In the past, bankrupts had difficulty finding banks that would allow them to open accounts, but that has changed. Many high street banks now offer basic banking services even before bankruptcy is discharged.

However, while bankruptcy may not be as devastating as some myths suggest, it is still a serious financial event that affects a person’s life for many years.

Joseph Green, head of consumer affairs at credit reference agency Experian, says: “A bankruptcy order appears on your credit report for at least six years from the date of the bankruptcy order. During this period, a number of restrictions apply of which you should be aware.

“For example, you are legally required to tell a lender that you are bankrupt if you apply for credit over £500, which means you may struggle to get credit during the bankruptcy period. Even after this period, agencies may refuse to grant you credit or other financial services simply because you have been bankrupt in the past. Most bankruptcies are discharged within the first year, which means you are discharged from all debts covered by your bankruptcy.

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