From 6 April 2016, debtors in England and Wales who wish to enter bankruptcy will need to apply online and will no longer be able to petition the Court. The final form statutory instruments to introduce the necessary changes were published on 22 February 2016.
It will cost £130 for a debtor to apply for his own bankruptcy (£50 less than the current fee), plus the Official Receiver’s deposit of £525. The debtor’s application will be considered by an adjudicator appointed by the Secretary of State within 28 days of being submitted. The adjudicator has the right to request further information. If the adjudicator refuses the debtor’s application, he can appeal to the County Court.
The justification for the change is to free up Court time. It is one of a number of insolvency services to be moved online. On 1 September 2015, an online service was introduced for redundancy payments and from 1 April 2016 insolvency practitioners will start submitting reports on directors’ conduct online.
However, bankruptcy differs significantly from these other procedures. A criticism of the new debtor bankruptcy procedure is that by removing the Court from the process, it serves to reduce further the stigma associated with bankruptcy. Since 2004, bankrupts have been automatically discharged from bankruptcy after a year.
Having said the above, the number of bankruptcies have been steadily reducing since 2009 and are currently at their lowest levels since 1990. The Insolvency Service’s statistics for Q4 2015 show that the number of bankruptcies in 2015 were 22% lower than in 2014. It remains to be seen whether the new changes will reverse this trend.
Of course, one of the reasons for the reduction in bankruptcies was the introduction of debt relief orders in 2009, although they are also in decline and at their lowest levels since they were introduced. A debt relief order is meant to provide debtors with limited assets and debts of less than £20,000 with an alternative way of obtaining a release from their debts. Whilst an application for a debt relief order is also made online, it can only be made through an intermediary such as the Citizens Advice Bureau. It seems strange that debtors are required to seek advice before obtaining a debt relief order, but a debtor with a higher level of debt can simply apply online for their bankruptcy. Concerns have been raised that debtors may apply for bankruptcy in situations where, had they obtained appropriate advice, they would have discovered that another debt solution would be more appropriate. To counteract this, the Insolvency Service have updated their website to provide information on all the debt management solutions that are available.
For lawyers, the impact of the changes is that there will be some tidying up work to do, as we will need to expand the references to bankruptcy petitions in insolvency and termination clauses in contracts and leases to include a reference to the new bankruptcy application process.
Similar changes which have been suggested in the past dealing with creditor bankruptcy petitions and company winding up petitions online are currently on hold.