Every year there are literally thousands of people confronted with debt that reaches a point of being unmanageable, whether through bad luck, an inability to foresee the problem that was looming or, in some cases, other reasons. Until recently, these unfortunate people have been able to petition the court for their own bankruptcy, provided they could afford to pay the petition costs. This is what we refer to as a “Debtors’ own petition”.
However, from 6 April 2016, instead of going to court, individuals wanting to make themselves bankrupt will have to apply on line through a portal on the Government website at GOV.UK. The application fee is £130 (which is £50 lower than the original petition cost) and this can also be paid online. If you pay online the applicant will even be allowed to pay the cost by instalments.
The application will be considered by an adjudicator within the Insolvency Service who must determine whether a bankruptcy order is made within 28 days of the application being submitted. This period could be extended by up to a further 14 days if the adjudicator requires further information before being able to determine the application.
So, what happens on adjudication? There are two options for the adjudicator, namely:
- Agree a bankruptcy order should be made. Upon making this decision the adjudication/application papers are passed over to the Official Receiver who will take all appropriate steps to administer the bankruptcy estate from thereon; or
- The application is rejected. Although it has not been made clear why an application would be rejected, it can be assumed grounds for rejection will include a view an alternative method of addressing the debt problem is better than bankruptcy. This will include procedures such as voluntary arrangements or debt relief orders. However, if rejected, the debtor may apply within 14 days of being notified for the adjudication to be reviewed. Should the review uphold the rejection then the debtor may within 28 days of the review determination apply to court who may make an order they see fit, which may include making a bankruptcy order or dismissing the application.
These changes only relate to debtors’ own petitions. A creditor who is owed in excess of £5,000 may still proceed to petition the court for the debtors’ bankruptcy as before because this procedure remains unaffected by the changes. Equally, the procedure for petitions presented by personal representatives of insolvent estates or partners of insolvent partnerships remain unchanged.
So, why the change? At present, the courts are heavily overburdened and the Government are looking at ways to ease that burden. Encouraging alternative dispute resolution methods (such as mediation or arbitration) is one way. The second has been the reduction of bankruptcy petitions heard by the court. According to Insolvency Service statistics there were 11,423 debtor own petitions filed in 2015 (compared with 4,374 creditor petitions). Therefore, on the face of it, amending rules that remove debtor own petitions from being a court process will remove a significant volume of administrative court time.