Bankruptcy overhaul mooted as too many walk away from debts

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The Independent Online

The Government is considering a radical shake up of bankruptcy laws because of worries that its attempts to take the stigma out of being bankrupt have led to a massive rise in people walking away from their debts.

The Government is considering a radical shake up of bankruptcy laws because of worries that its attempts to take the stigma out of being bankrupt have led to a massive rise in people walking away from their debts.

Two separate consultations have been launched to see whether rules, which only came in with the Enterprise Act last year, need to be changed. The Act brought in a faster bank- ruptcy procedure, which can see someone discharge their bankruptcy in only a year. This was trumpeted by ministers as taking the stigma out of bankruptcy, and promoting a risk-taking culture.

However, there are fears this has backfired following the massive rise in personal bankruptcies. A record 11,200 filed for bankruptcy between April and June in England and Wales, a third more than for the same period in 2003.

One of the consultations is being run by the Department for Constitutional Affairs, and among the issues it is asking experts to look at is how to deal with the so-called "No income, no asset" bankrupts who become over-indebted and use bankruptcy to escape their obligations. One plan is to have a debt-relief service to which people who are overstretched have to go before they can be declared bankrupt.

Another proposal is for an Enforcement Restriction Order, covering people who may be able to deal with their debts in the longer term, but cannot pay in the short term. Other plans include reforming the court system for enforcing debts and strengthening private and voluntary sector repayment schemes.

The other consultation is through the Insolvency Service, part of the Department of Trade and Industry. It is scrutinising individuals' voluntary arrangements - deals struck by debtors with their creditors to try to avoid bankruptcy. Many in the insolvency arena are worried that these processes are too cumbersome and time-consuming and that people find bankruptcy an easier option.

"The IVAs are complex and expensive and not really any good for the consumer debtor," said Pat Boydon, a partner at PricewaterhouseCoopers.

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