Bankruptcy cheats face crackdown

A MAJOR crackdown on people who use 'quickie' bankruptcies to shrug off their debts is being planned by the Government.

Figures from the Department of Trade & Industry on Friday are expected to show a continuing surge in borrowers declaring themselves insolvent and the Government is determined to combat suggestions that a recent change in the law has made bankruptcy a 'lifestyle choice'.

Under the change in 2002, the discharge period - during which a bankrupt cannot open bank accounts, take out credit cards or resume normal financial life - was cut from three years to one.

The change was intended to attract people into becoming entrepreneurs and remove the stigma of bankruptcy, but evidence has shown that it has become a 'get-out-of-jail-free card' for those with debts, encouraging people to use insolvency as a way of shaking off creditors.

But a little-used provision allows the Insolvency Service to ask a judge to issue a restriction order to prevent an irresponsible bankrupt from being discharged for up to 15 years.

Financial Mail understands that under the crackdown, the Government is planning to name and shame 'irresponsible' bankrupts. Restriction orders will be applied more frequently, and when granted, they will be heavily publicised.

The new Government proposals, due out in the next few days, will also make it easier for creditors to set up a plan under which insolvent people can make repayments - a procedure called the Individual Voluntary Arrangement. Until now, IVAs have been used mainly by self-employed business people.

In 2000, creditors in England and Wales applied for 17,220 bankruptcy petitions, while only 12,757 people asked to be declared bankrupt to be shielded from their creditors.

By 2003, the number of petitions lodged with the courts by creditors was 17,254, while the number of people who effectively had themselves declared bankrupt had surged to 19,296.