There is currently a consultation paper published by the Insolvency Service to consider the process of debtor petition bankruptcy and early discharge from bankruptcy.

This is an important paper not least because it proposes to remove the court from the process and allow debtors to go 'online' and submit their application for bankruptcy to the Secretary of State.  The application will then be determined by a 'Decision Maker'.  Whilst the paper goes to some lengths to emphasise the seriousness of bankruptcy, it might be argued that this will become diluted by the somewhat mechanical procedure that is now proposed and the fact that the court will not be involved in that process.  Further, whilst discharge will no longer be permitted before twelve months, it is proposed that this will be automatic on the first anniversary of bankruptcy, unless it has been otherwise suspended.

The current economic downturn is causing real hardship for many, and the Government is determined to do all it can to support people, both now and in the future.

They have already taken active steps to improve the provision of debt advice and support for people facing financial difficulty.  But the credit industry as a whole must recognise that some people are simply overwhelmed by unmanageable levels of debt that they will never be able to repay.  For those individuals, seeking their own bankruptcy is often the only way of securing much needed relief.

Creating a new administrative entry process, where an individual can apply for
their own bankruptcy without going through the court could reduce the delay many debtors experience between presenting their bankruptcy petition and the bankruptcy order being made.  This new process would undoubtedly free up valuable court time and resources.

The challenge of the Insolvency Service will be to design a route for debtors into bankruptcy that is modern, value for money and accessible, whilst ensuring that appropriate checks are made to justify the order.

The Insolvency Service are also recommending repeal of provisions relating to early discharge of bankrupts within 12 months, as these have been found to be ineffective in achieving the aim of reducing stigma, whilst costing significant amounts to administer.  The proposal is to allow automatic discharge on the first anniversary of the bankruptcy order.

There are a number of questions that the consultation must address, notably:

• What skills and experience will those Decision Makers have in order to make bankruptcy orders?
• What links should there be between the Decision Maker and other bodies?
• How will the Insolvency Service communicate to debtors the seriousness and implications of a bankruptcy order?
• What information will be provided to debtors to enable them to determine if bankruptcy is the correct option?
• Should debtors be encourage to consider alternative debt resolution before submitting an application for bankruptcy, and can the decision maker have power to direct a debtor to do so ?
•  Should debtors be allowed to make such applications on-line? Will this devalue the process?
• What powers will the decision maker have?

Following evaluation of the Enterprise Act 2002, it highlighted that the provisions relating to personal insolvency were successful, with one exception, early discharge which failed to prompt rehabilitation of bankrupts adjudged to be non-culpable.  The consultation is to consider if this would benefit from being repealed.

Given the statistics that the Insolvency Services have disclosed, this particular change would be welcome.  An average of 45% of bankrupts is discharged early.

It is anticipated that the responses to the consultation will be considered in the next 3 months, with results due in the second half of this year.