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Plans to make bankruptcy easier are ill-conceived, Institute warns

5 February 2010

Government proposals to reduce bankruptcy to an online ‘box ticking’ exercise have been roundly condemned by the organisation whose Members are most likely to have to deal with the fall-out.

“Applying for insurance or booking a holiday online is one thing,” says Philip King, Chief Executive of the Institute of Credit Management (ICM), “but becoming bankrupt online leaving a trail of unpaid creditors is not.”

The current proposals appear in a consultation, led by Ian Lucas, the Minister for Business and Regulatory Reform, aimed at creating a new administrative entry process, where an individual can apply for their own bankruptcy without going through the courts.

The government believes that this will remove, or at the very least reduce, the delay many debtors experience between presenting their bankruptcy petition and the bankruptcy order being made. It would also free up valuable court time and resources. The changes would achieve this, Mr King concedes, but making it too easy is “inappropriate, unwelcome, and likely to have seriously damaging consequences.”

The idea of DIY Bankruptcy has been met with horror among those in the credit industry, notably the ICM, who believes the government is going too far with little thought of the chaos it will create: “What is needed is a system whereby any debtor seeking insolvency is required to have a face-to-face meeting with someone who can properly explain the options and their consequences,” says Mr King. “At the very least there needs to be an objective scorecard system based on the questions and answers given,” he adds.

Mr King says that ‘fast-tracking’ bankruptcy will be used as a loophole by the unscrupulous, and doubts the ability of the proposed ‘decision makers’ to adjudicate fairly and consistently. “This should not be about ‘insolvency factories’,” says Mr King, “and I would very much like to know how the government is going to monitor the quality of the decisions made.

“A tick box is totally inadequate,” he concludes. “Bankruptcy is a serious step, and needs to be treated as such. The current system is inconsistent, ineffective and should be fixed, but not simply on the basis of cost-savings.”