The Government is making some important changes to the bankruptcy application process, and to bankruptcy fees, in England and Wales from 6 April 2016. This article from personal insolvency experts, Bankruptcy Clinic, explains why these changes are being made and how people considering bankruptcy can expect to benefit.
Before 6 April 2016, a person wanting to declare bankruptcy (a debtor) would have applied directly to the court – a process known as petitioning. However, the new rules mean that a debtor will now submit an online application to the central Government website. This will be considered by an officer within the Insolvency Service known as the Adjudicator, who’ll make a Bankruptcy Order if they feel this is the best course of action.
The idea behind the change is to remove the courts from the application process and use online technology to make the process of declaring bankruptcy faster, easier and more convenient for everyone involved. Online applications are also more cost-effective for debtors, as they won’t have to travel to court, and for the government which is estimating cost savings of around £7 million a year.
The changes were first mooted back in 2011 when the government ran a consultation exercise to gather feedback on the processes for bankruptcy applications. The exercise considered both voluntary petitions from debtors and applications from creditors to force a debtor’s bankruptcy.
The response to the consultation, which closed in January 2012, found that 86% of respondents were in favour of reforming the court-based process for bankruptcy petitions initiated by debtors. However, this wasn’t the case for creditors wanting to petition for a debtor’s bankruptcy, so this process will still involve the courts.
The new rules affect individual bankruptcies only, with no effect on businesses, charities or voluntary organisations. The government will be publishing new guidance on its central website to explain the changes in detail and how debtors can go about making online applications to the Adjudicator.
Andy Gorton, Bankruptcy Clinic’s Managing Director, comments: ‘This is a great example of debt management processes moving with the times, and the Insolvency Service recognising the benefits of online communications. Making a bankruptcy petition in person, with the worry of a possible court appearance, has been a big issue for many of our customers over the years.
‘Taking the courts out of the equation will give bankruptcy applications a more “user-friendly” feel from 6 April – which might encourage people who’ve been putting it off to go ahead with their petition. One important thing to note, however, is that the process after the Bankruptcy Order has been made won’t change. So you may still need to attend a face to face meeting with the Official Receiver, although most interviews are now done by phone.’
The Insolvency Service has also announced a reduction in bankruptcy fees. As of 6 April 2016, the previous court fee of £180 will be replaced by an application fee of £130 – a £50 reduction. The second part of the bankruptcy fee, known as the deposit, will remain at £525, so the overall cost of declaring bankruptcy will be £655 as opposed to £705.
Both sets of fees can now be paid online or in cash, either by the applicant or by a third party. They can also be paid in instalments (online only), which wasn’t allowed under the old system. The obvious benefit here is that an upfront, cash payment of £705 will no longer be required – removing a major barrier to declaring bankruptcy for many debtors.
So why has the government made it cheaper to go bankrupt? One reason is the cost savings that will result from the new online application system. The other, which isn’t quite such good news, is that application fees will no longer be waived for people in certain circumstances, such as those receiving benefits. This means that becoming bankrupt will now be more expensive for this group, as they’ll pay £130 that they wouldn’t have paid before.
Says Andy: ‘The fee reduction is a bit of a mixed blessing, with an estimated 15% of debtors no longer benefiting from waived court fees. However, this will hopefully be offset to some degree by the new flexibility around how application and deposit fees can be paid. The introduction of instalments is an especially positive step that should enable more people to consider bankruptcy as an option in the future.’