For centuries, bankrupts were subjected to harsh punishment to those that have not been able to manage their money. Punishments have ranged from pillorying, public flogging, slavery and even death; luckily in 2016 the emphasis has changed.
Rather than punishing individuals who run into financial difficulty the focus now is on giving them the opportunity of a “fresh start”. There is some hardship caused by restrictions placed on the bankrupt for 12 months.
Where the bankrupt has been dishonest or deemed to be to blame for the debts, the court can issue a bankruptcy restriction order extending the restrictions for up to 15 years.
The punishments of days gone by were there to create the most humiliation possible to the bankrupt so that everyone would know of their shame. Although, the public punishments have disappeared, the stigma of bankruptcy remains affecting life after bankruptcy as much as the time spent in it.
However, to make it easier people with an unmanageable amount of debt can now apply for bankruptcy online. More and more people are choosing the online method of bankruptcy instead of the more traditional route of going to court. Having to go through court proceedings has a perceived level of stigma and had been a barrier to some people in bankruptcy previously.
April’s rule change on bankruptcy and a cut in the cost of online bankruptcy has led to more people making themselves bankrupt with numbers up 7% in the third quarter of 2016 compared with the previous year.
As well as being able to declare yourself bankrupt, a creditor (a person or company you owe money to) can make you bankrupt. However, there has been a fall in these types of applications meaning that bankruptcy totals have fallen 1.5% compared to last year.
However, the number of personal insolvencies is nearly 20% higher in the last quarter compared with the previous year. This is being attributed to an increase in the number of IVAs, an alternative to bankruptcy, ideal for debts that could be repaid over time and people who own assets such as a house.
The rise of IVAs and the availability to apply for bankruptcy online has not only seen a fall in applications but also a drop in the stigma associated with the personal insolvency process. However, Jane Tully from the Money Advice Trust says that the best way to remove stigma is to educate and promote free money advice; “Given the economic uncertainty… our concern remains for the minority of households that are struggling financially or are relying on credit to make ends meet… We are therefore urging all borrowers to take stock of their household finances now – and to seek free advice.”
It may be tough to remove the stigma of bankruptcy completely as your credit rating will be negatively affected and you will struggle to obtain credit. Having being made bankrupt, this will stay on your credit rating for 6 years as a warning to creditors of your credit history.
Bankruptcy is a serious matter after all and dealing with debts as well as managing finances is vital when remaining in the black and staying out of the red.
To find out more about the history of bankruptcy, check out the informative article by our very own Andy Wood on The Gazette’s website.