Phil MeekinView Profile
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.
A new approach
Punishments were designed to create the most humiliation possible to the bankrupt so that everyone would know of their shame. Although the public humiliations have disappeared, the stigma can still affect life afterwards as much as during the bankruptcy. However, to make it easier, people with an unmanageable amount of debt can now apply for bankruptcy online. More people are choosing the online method of bankruptcy over the traditional route of going to court. Court proceedings have a level of stigma, which can act as a barrier to some people.
Rather than punishing individuals who run into financial difficulty, the focus is now on giving them the opportunity for a fresh start, although restrictions will still be placed on the bankrupt for 12 months. Where the bankrupt has been dishonest or deemed to be at fault for the debts, the court can even issue a bankruptcy restriction order; extending these restrictions for up to 15 years.
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.
Rise in bankruptcies
April 2016’s rule change on bankruptcy and a cut in the cost of applying online 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 fell 1.5% compared to 2015.
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 Individual Voluntary Arrangements (IVAs); formal arrangements, which serve as an alternative to bankruptcy, ideal for debts that could be repaid over time and people who own assets such as a house or a car.
Ending the stigma
The rise of Individual Voluntary Arrangements (IVAs) and the ability to apply for bankruptcy online has not only seen a fall in applications, but also a drop in the stigma associated with personal insolvency. 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 altogether; your credit rating will be negatively affected, and you will struggle to obtain credit. Once you’re made bankrupt, this will stay on your credit rating for six years as a warning to creditors of your credit history, and this could make certain parties reluctant to deal with you.
Bankruptcy is still a serious matter, and dealing with debts as well as managing finances is vital to stay solvent.
In recent years, the stigma attached to bankruptcy has changed. Although there are still punishments attached to being personally insolvent, there is a lot more help available for those individuals. It’s now easier to apply for personal bankruptcy, so you don’t have to go through the courts. Although this led to a rise in bankruptcies and personal insolvencies, a lot of this increase can be contributed to the additional use of Individual Voluntary Arrangements (IVAs), meaning people don’t have to go bankrupt to clear their debts.