I have just learnt that as from 6th April 2010 the fee you will have to pay to go bankrupt will jump a whopping 25%, from £360 to £450! On top of this is the court fee of £150, and although there are exemptions for those on benefits it means that generally, the already struggling consumer will soon need to find £600 just to go bankrupt.
At a time when insolvencies are running at the highest level since records began back in 1960, this has just got to be total madness. Where is the caring Government that professes to help and support the consumer? You have got to ask whether this hike in fee has been done deliberately to keep the bankruptcy numbers down and is a ploy to force consumers into other options such as long term debt repayment programmes (DMPs) which offer no debt relief and do not appear in the bankruptcy figures.
With unemployment levels expected to climb again this year and more house repossessions likely, there will be an increasing need for some to be able to petition for bankruptcy. Ironically the fee prevents many from doing so.
Take the case of Jo for example; diagnosed with cancer, no longer able to work and without an income her house was repossessed in 2008. This was sold for £25000 less than its true value and now the mortgage lender is pursuing her for the shortfall, interest and legal charges of around £30,000.
With £9,000 on credit card debts and paying £60 pcm through a debt management plan, it will take her 13 years to clear her debt if the interest is frozen. Jo is struggling to meet even this £60 pcm and is convinced that the underselling of her property has forced her into bankruptcy.
Jo told me that in the past she has always supported friends when they had money worries not knowing that in the future it would happen to her. She said to me ‘I have no security, I'm such a home loving person it’s destroying me, I have no hope now’.
Problem is, with no security and no assets apart from an aging car which often takes what little money she has, she will struggle to find the fee to go bankrupt, and, having spent much time in helping her face up to the prospect of bankruptcy, I dread having to tell her about this latest increase.
We need urgent decisive action to help clear the ‘log jam’ of individuals, like Jo, caught in the limbo of being unable to take effective action to deal with their debt situation. Instead of increasing the fee it should instead be reduced in order to enable more to take this course of action and help erase their misery and suffering.
Any reduction in the fee would obviously have cost implications but it would demonstrate a positive commitment towards a vulnerable element of society and would be welcomed by the debt counselling profession.
According to the Insolvency Service back in May 2009 a bankruptcy costs on average £1,715 to administer, part of which is met from current fee. The Insolvency Service told me that ‘If the Official Receiver’s deposit were to be waived in its entirety, all the costs of case administration would have to be met from other sources, in particular, the tax payer and creditor.’
My response was that that I did not agree as I am convinced that it is often the creditors’ lack of support, together with additional interest charges, that force an individual into bankruptcy in the first instance. If creditors were aware that they would have to bear some of the cost of administering a bankrupt’s estate then they may think twice. I also don’t believe tax payers will need to foot the bill of reduced fees because bankrupts actually do pay something back towards the cost of administering their case.
All bankrupts are assessed to see if they can make any payments under an Income Payment Agreement (IPA) which is a legally binding written agreement between the bankrupt and the Official Receiver. The IPA will run for a period of 36 months, initial payments will cover the cost for the administration of the bankruptcy order, after which creditors receive a dividend of the surplus funds. If so ordered by the court to pay then this becomes an Income Payment Order (IPO).
Between 2007 -2009, 41,170 IPAs and 204 IPOs were implemented and which do not account for the selling of any assets such as vehicles or homes that belonged to the bankrupt. So in fact the Government does actually make quite a lot of money from bankrupts!
Even more money is made, subject to the timing of the petition, in a well hidden scheme whereby an individual going bankrupt and in receipt of an income, will receive a NT tax code and the tax is diverted to the Official Receiver towards the administration costs for up to 12 months.
Another important point is that many consumers recover from bankruptcy and rejoin the ranks of tax and National Insurance payers and contribute to the income stream, so it is not all doom and gloom for the PM.
So let’s cut to the chase; why is it so expensive to go bankrupt? When a consumer does not have the ability to repay their debts and cannot afford to enter into any type of repayment programme through lack of funds why is there not more support?
The last debtor’s prison shut in 1869; come on guys, that’s 141 years ago, society, culture and attitudes have moved on. You don’t hear anyone harping on too much about Portsmouth Football club about to go into Administration with debts of 70 million!
