Can online bankruptcies work effectively?

 

May 3, 2008

The word bankruptcy send shivers up the spines of many people, and quite rightly so, as this is a process that can have a severe and long lasting impact on your financial future. Not only this, but the whole bankruptcy process can be difficult, time consuming, costly, and stressful, involving reams of paperwork and dealing with the bankruptcy courts. It is, perhaps, these points that put some people off filing for bankruptcy, persuading them instead to look at another more suitable solution, which could save them from a very difficult financial future.

However, from next year the process of filing for bankruptcy and getting debts wiped away will become easier and faster for some people, as the government is planning to introduce a new scheme. From next April the government plans to bring in Debt Relief Orders, and these will be aimed at those with under £15,000 worth of debt, with less than £50 a month in surplus income, and with assets of less than £300. The process is designed to save the consumer the cost of having to file for bankruptcy in the traditional way.

By using this process eligible consumers will be able to file online and after one year their debts will be wiped off. There will be no need to complete lengthy paperwork and the consumer will not have to go to the bankruptcy courts. However, whilst this improves convenience, ease, and speed for borrowers that are desperate to get out of debt some think that perhaps it will make things a little too easy. A number of industry officials are concerned that the ease of this process will leave it open to abuse, and that it could result in many people filing for bankruptcy when they are not actually bankrupt.

During the year between filing for the bankruptcy and actually having their debts discharged consumers are obligated to tell relevant officials of any changes in their financial circumstances, and therefore if their circumstances improve the order could be cancelled.

However, some officials think that even this system is open to abuse, with one official stating: ‘It will be difficult for the intermediary to carry out a detailed investigation into the affairs of the debtor because it just wouldn’t be worthwhile financially. Ordinarily, the trustee of a normal bankruptcy order has further powers to investigate the individual, more statutory muscle. This loophole may make it easier for people to break the law.’

However, he also added that there may be more stringent penalties in place with these Debt Relief Orders if they are abused by consumers, which could lead to being charged with a criminal offence. He added: ‘I don’t think there will be a flood of people to take advantage of this however. Anyone who tries to would be the same kind of person to take advantage of the system anyway.

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