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Personal insolvency regime in need of reform, says R3

Personal insolvency regime needs to be ‘future-proofed’ against possible rise in insolvencies once interest rates go up

Personal insolvency procedures are in need of reform to provide better protection to both creditors and debtors, according to a new report published by R3, the insolvency trade body.

Under current rules, potentially thousands of indebted individuals struggle to access a debt relief solution that is suitable for their needs. Insolvency practitioners are also concerned that reckless spending is not sufficiently discouraged, to the detriment of creditors.

Stuart Frith, chair R3’s personal insolvency committee says: “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.”

Stuart Frith adds: “The current regime has the right building blocks to achieve this balance, but more work can be done. 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:

  • Allow the up-front £700 bankruptcy administration fee to be paid in instalments. Under current rules, many people can’t afford this fee and are unable to access bankruptcy and protection from their creditors.
  • Make Debt Relief Orders (DROs) easier to access. DROs are an alternative to bankruptcy, and cost £90 to enter. However, debtors must have under £300 of assets and £15,000 of debts to enter a DRO. The DRO limits are too restrictive and should be raised to £2,000 for assets and £30,000 for debts.
  • Lengthen the standard bankruptcy term from one year to three years – with a maximum 15-year term for the most culpable debtors. Reckless spending and behaviour that can lead to bankruptcy is not discouraged by a one-year term, which puts creditors at risk.
  • Introduce simplified Individual Voluntary Arrangements (IVAs). It should be made easier for debtors’ repayment proposals to be approved by creditors, and creditors should not be able to make changes to proposals.

Stuart Frith adds: “Parts of our personal insolvency regime are both too lenient and too inflexible.”

“Whilst on the one hand wealthy Europeans are heading to England and Wales to take advantage of the bankruptcy regime and its very short bankruptcy term – so-called ‘bankruptcy tourism’ – on the other hand, financially struggling people unable to afford the fee to enter bankruptcy and have too many debts and assets to enter a DRO. These people are left without protection from their creditors.”

According to R3’s latest Personal Debt Snapshot, 2.4m British adults say they are currently in a debt management plan. These are unregulated debt solutions but formal options may be more suitable. Just over 100,000 people entered a formal insolvency procedure last year.


Full details of R3’s proposals can be found in ‘The Personal Insolvency Landscape’, which can be read here.

Notes to editors:

  • R3 is the trade body for Insolvency Professionals and represents the UK’s Insolvency Practitioners.

  • R3 comments on a wide variety of personal and corporate insolvency issues. Contact the press office, or see for further information.

  • R3 promotes best practice for professionals working with financially troubled individuals and businesses; all R3 members are regulated by recognised professional bodies
  • R3 stands for 'Rescue, Recovery, and Renewal' and is also known as the Association of Business Recovery Professionals.