Personal insolvency procedures should be reformed to better protect debtors and their creditors, says insolvency trade body R3.
A new report from R3, published on 20 January, says that under current rules, potentially thousands of people are struggling to access an appropriate debt relief solution and calls for changes including extending the standard bankruptcy period to three years.
Stuart Frith, chair of R3’s personal insolvency committee said: “Personal insolvencies and consumer debt have recently increased, while an interest rate rise looms on the horizon. Action is needed now by the government to make sure the personal insolvency regime can deal with any sustained rise in the numbers of people with severe debt issues.
“A good personal insolvency regime must strike the right balance between helping financially struggling people get back on their feet, and protecting creditors like banks and businesses from people running up debts without being worried about the consequences.
“Too many people are currently unable to access a personal insolvency solution that is right for them.”
R3’s report contains calls for the government to introduce reforms including:
- allowing the up-front £700 bankruptcy administration fee to be paid in instalments, making it easier for people who cannot afford the total cost immediately to access bankruptcy and protection from creditors
- making Debt Relief Orders (DROs) easier to access. Debtors must have under £300 of assets and £15,000 of debts to enter a DRO at present. R3 says the limits should be raised to £2,000 for assets and £30,000 for debts
- lengthening the standard bankruptcy term from one year to three years, with a maximum 15-year term for the most culpable debtors. R3 says reckless spending and behaviour that can lead to bankruptcy is not discouraged by a one-year term, which puts creditors at risk.
- introducing simplified Individual Voluntary Arrangements (IVAs).
Mr Frith added: “Financially struggling people unable to afford the fee to enter bankruptcy and [with] too many debts and assets to enter a DRO…are left without protection from their creditors.”
According to R3, 2.4 million British adults say they are currently in an unregulated debt management plan. Just over 100,000 people entered a formal insolvency procedure last year, an arrangement that may be more suitable that an unregulated plan.
The Palmers team can provide sensitive professional advice and guidance on personal insolvency matters, including IVAs. For more information, please visit our website or contact Andrew Skinner.