Nearly three-quarters of personal insolvency practitioners have seen individuals unable to go bankrupt
70% of personal insolvency practitioners say they have seen debtors unable to enter bankruptcy in the last year because they could not afford the debtor’s petition, says R3, the insolvency trade body.
To enter bankruptcy, an individual must make an upfront payment of £175 in court fees and pay a £525 administration fee to the Insolvency Service (‘the debtor’s petition’).
59% of personal insolvency practitioners (IPs) that had seen people unable to afford the debtor’s petition said that the individuals in question had then not addressed their debts at all.
Stuart Frith, chair of R3’s personal insolvency committee, says: “The current rules severely limit the chances of financially struggling people resolving their situation. It is a matter of some concern that entering bankruptcy has become unaffordable for some.”
“There are steps that could be taken to remedy this problem: the debtor’s petition could be paid in instalments, for example. This would make the process accessible, whilst the need to eventually pay the full fee would also recognise that a cost should be incurred by someone looking to achieve protection from creditors. This fee also makes a contribution to the costs of the process itself.”
Stuart Frith adds: “It is important that the system strikes a balance between making it easier for people to get back onto their own two feet financially, whilst at the same time enabling creditors to receive what is due to them.”
28% of personal IPs said they had ‘fairly’ or ‘very’ frequently seen an individual unable to afford the debtor’s petition.
Only 6% of personal IPs said that individuals unable to afford the debtor’s petition had gone on to enter an Individual Voluntary Arrangement (IVA); 3% said individuals had subsequently entered a Debt Management Plan (DMP); and just 2% said individuals had gone on to enter a Debt Relief Order (DRO).
Stuart Frith comments: “Whilst some of these processes are appropriate in the individual circumstances of each case, the cost of entry into bankruptcy is tending to remove it as a choice, even in those cases where it is the obvious solution. . Unfortunately, those who can’t enter bankruptcy are often ineligible for a DRO, while an IVA can be difficult to negotiate with creditors and neither may be the right solution in any event.”
Stuart Frith adds: “Regardless of whether an individual got into debt through reckless spending or through no fault of their own, the insolvency regime needs to make all available options available according to the circumstances of each case."