New 'buy now pay later' rules to make bankruptcy more accessible

New rules which come into force from 6 April 2016 will make it easier and cheaper for those with problem debts to file for bankruptcy.

Currently, individual debtors wishing to apply for bankruptcy have to attend court and pay £705 in fees. Importantly, the court won’t accept a petition unless the fees are paid in full using cash, a postal order or a solicitor’s cheque.

In order to introduce greater flexibility, reduce costs and address concerns that the requirement to attend court is putting people off applying for bankruptcy, a new debtor petition process available from next month will allow claimants to apply online to an independent adjudicator.

The fee will be reduced to £655, applicants will be released from having to appear in court, and importantly, they will be able to pay in instalments from as little as £5 per month using a debit or credit card.

The adjudicator, who will sit within the insolvency service but be independent of the office of the Official Receiver, will assess each petition instead of the court and decide whether to grant a bankruptcy order.

Mark Sands, Personal Insolvency Partner at RSM said:

‘The imminent reforms to the debtor petition process are in many ways very sensible. Too much judicial time has been spent considering debtor’s bankruptcy petitions, the vast majority of which have resulted in an order being made, so there will undoubtedly be some freeing up of court time to deal with more complex issues.

‘The new regime removes some of the administrative difficulty and social stigma associated with applying to and appearing in court. The changes to payment options will also remove an important barrier for those in financial difficulty who simply aren’t able to pay the bankruptcy fee in full in one go. However, we have concerns over the ability of prospective bankrupts to pay the costs of entering bankruptcy on a credit card thus incurring credit they will not repay. The facility needs to be available for charities, or family and friends, to help out – not for the burden to be moved to the lenders.

‘What we don’t know as yet is whether this measure will encourage more people to enter bankruptcy proceedings. We have seen an overall decline in bankruptcies over recent years, in part because interest rates have remained so low for so long, but also as a result of the rise in alternative options such as IVAs, debt management plans and debt relief orders. It may be that we’ll only see an increased take-up in bankruptcy petitions when interest rates do eventually start to rise. ’

Last year, around 16,000 people in England and Wales were declared bankrupt. Roughly, three quarters of those filed for bankruptcy themselves, while one quarter were made bankrupt by creditors’ petition.