Bankruptcies set to soar tenfold

NEW rules on personal bankruptcies could lead to a tenfold increase in the number of people going bust, insolvency experts have warned.

From 1 April next year people will be discharged from bankruptcy after 12 months or less, instead of the current three years.

But corporate recovery and insolvency specialist Smith & Williamson says the change will dramatically reduce the incentive to repay debts.

In the year to April, there were more than 25,000 bankruptcies in Britain as, lured by low interest, people took on debts they could not afford to repay.

Under the new rules, which form part of the Enterprise Act to encourage entrepreneurs, this figure could rise to a quarter of a million, Smith & Williamson said.

In London and the South East, there were nearly 5,000 bankruptcies over the same period, a figure that could rise to 50,000 after the change.

Tony Murphy, director of corporate recovery at Smith & Williamson, said: 'We fear the law may be abused. Our concern is that people will needlessly go into bankruptcy, whereas we think that under the current regime they make more attempts to repay their debts and reach settlements.

'The majority of all credit card debt is with younger people who do not have any major assets - no pensions and no houses. There is little incentive for them to repay these monies and settle their debts.'

Anyone with debts of more than £750 can make themselves bankrupt. They are unable to obtain credit of more than £250 without disclosing that they are bankrupt and may find it difficult to open a bank account.

A receiver is appointed to assess the debtor's assets and liabilities an a trustee distributes assets among the creditors.

Amy Brown at the Consumer Credit Counselling Service agreed that the number of people going bust is likely to soar under the new rules. She said: 'There is nothing wrong with going bankrupt per se, although the psychological effects should not be underestimated and it may be difficult to get certain jobs. There is still a stigma, which will take some time to change.'

Robert Pick, a personal insolvency expert at accountant Grant Thornton, said tighter regulation of irresponsible lenders offering high-interest loans to people with poor credit histories was also needed.