New bankruptcy rules come into force

The Enterprise Act, which from 1 April 2004 is set to promote entrepreneurship by getting company directors and sole traders back on their feet following a personal bankruptcy process is set to cause a further wave of bankruptcy applications from individuals with consumer debts, warns Mike Gerrard, a personal insolvency specialist at accountancy practice, Grant Thornton.

From today, (April 1) The Enterprise Act will sanction a number of changes to make it easier and quicker for most individuals to go through a bankruptcy process. The Act seeks to distinguish between 'innocent' and 'culpable' bankrupts, claiming to help to reduce the stigma that surrounds the process. 'Innocent' bankrupts will benefit from the easing of bankruptcy restrictions which will now apply for up to a year rather than the previous three. For those that are deemed 'culpable', restrictions will be increased to between 2 and 15 years.

According to the latest available statistics from the DTI, relating to the last three months of 2003, the number of personal insolvencies in England and Wales rocketed by almost 29 per cent compared to the same period in 2002 (7,967). The rise in numbers has reached runaway levels with an average year on year increase of more than 1250 since 1995.

Also the level of debt has risen. Mike Gerrard from Grant Thornton said: "Just four to five years ago we were seeing individuals with unsecured debts of £20,000, now it is not uncommon for an individual to have credit and store card debts of £50,000 plus.

"The new measures could prove too tempting for too many individuals who, ignoring the very serious consequences, may mistakenly see bankruptcy as a relatively painless get-out clause. Whilst the Act will probably be successful in achieving its aim to get what is a small number of entrepreneurs back on their feet more quickly and with much less stigma, it could encourage many others to file for bankruptcy thinking there is an easy exit for them."