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Insolvency Law

Expert guidance on all aspects of corporate and personal insolvency

12 JUL 2012

R3 research on bankrupts

R3 have published a very interesting piece of research on the bankruptcy pre-discharge time period. Apparently half of respondents think one year is insufficient. Some interesting points are raised by the research. It should be noted that the debtors' prisons (cited by the R3 president below) were for non-trader insolvents and formed a completely different and separate jurisdiction to the bankruptcy jurisdiction (which was for traders only from 1571 through to 1869).

Here are the details of the R3 research:

"Over half the population (58%) believes bankruptcy should last longer than a year, according to research by insolvency trade body R3. As attitudes towards bankruptcy hardens, 82% believe that some people take advantage of the bankruptcy system to write off their debts which they built up through reckless spending.

Nearly two thirds (64%) of respondents think that bankrupts should be treated differently according to their prior spending behaviour and most could avoid bankruptcy by reining in reckless spending (65% agree).

Lee Manning, R3 President, comments:

“Our bankruptcy regime, lasting only a year, is quite lenient compared to other countries. While no-one is advocating a return to the ‘debtor’s prison’, there is a strong feeling that a debtor’s spending behaviour should be factored into the length of the term of bankruptcy. Perhaps fuelled by stories of celebrity debtors, there is support for a move to distinguish the genuine hardship case from the reckless spender.

“Currently, the actual term of bankruptcy cannot be extended for reasons of reckless or blameworthy behaviour prior to bankruptcy. Although a Bankruptcy Restrictions Order (BRO) can be imposed to extend the restrictions of bankruptcy for between 2 and 15 years for culpable behaviour, a BRO does not increase the bankruptcy term. This means that any assets acquired by a reckless spender after their 12 month term of bankruptcy, even where they are subject to a BRO, can be retained by that individual rather than helping towards paying back their debts. Only by extending the term of bankruptcy, not just the restrictions, can we really hope to deter reckless spending.”

These findings come at a time when over half the GB population (54%) worry about their current levels of debt, while 51% struggle to make it to payday each month, especially in the 35-44 age group (average of 68%). Also, 4 million adults (8%) say they are likely to seek a payday loan in the next six months, the highest level recorded by R3.

Lee Manning concluded:

 “Those who struggle to make ends meet, using credit cards to bridge the gap, or who are considering a payday loan, will have to make some financial sacrifices in order to avoid their debts spiraling out of control and leading to a potential bankruptcy. Our research also indicated a tougher bankruptcy regime would make people more cautious with their spending, although too late to address today’s consumer debt problem. In the meantime, seeking professional advice as soon as possible is the best remedy for concerns over debt.”

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