The cost of bankruptcy rises again
June 5th, 2011
The cost of going bankrupt increased by £75 to £525 at the beginning of June leading debt experts and other analysts to suggest that the cost could discourage people with debt or other financial problems from seeking help.
If you include the court fee necessary to complete the process, going bankrupt now incurs an upfront cost of £700. The Insolvency Service said the increase was needed to cover the cost of administration and the charges, including court fees, have gone up by 37% since March last year.
However, insolvency practitioners have warned that the increase will put extra pressure on individuals who were likely to be under stress or depressed.
The £525 charge is a deposit to cover the cost of managing a bankruptcy, which allows the bankrupt person to throw off the burden of debt and make a fresh start. The Insolvency Service recovers a full administration fee of £1,715, less the deposit, from the bankrupt’s assets or surplus income at a later stage. This sum is not being increased.
The overall fee is staying the same but they are increasing the proportion of it paid upfront when the bankruptcy process is begun. The Insolvency Service has seen its income squeezed because of the falling value of homes and other assets which are recovered from bankrupts.
Currently, the £1,715 fee is never fully paid in half of bankruptcies.
There has been some criticism of the rising cost, with National Debtline that there are some people for whom bankruptcy would be the best solution to their debt problem, but for the fact they cannot afford the associated fees.
There is now a cheaper and easier alternative, the Debt Relief Order (DRO), which costs £90.
An increasing number of people who are in financial trouble and looking to escape their debts have been avoiding bankruptcy and taking this lower cost route.
In the first quarter of this year there were 6,788 DROs, a 20% rise on the previous year.
However, people can only ask for a DRO if their debts are less than £15,000 and savings and assets are less than £300.
This leaves the glaring question of what to do if you have £16,000 of debt or more. You are faced with a barrier of hundreds of pounds before you can opt for bankruptcy to resolve your difficulties.
Responding to the criticism, the Insolvency Service pointed out that it is obliged by Parliament to break even, a task which has become increasingly difficult but will be made more realistic if they can recover more of their costs at the beginning of an often long and expensive process.
It is right that bankrupts pay something towards their debts and the Insolvency Service exists to strike a balance between giving bankrupts debt relief and a fresh start, and the need to provide some return to creditors.
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