Bankruptcy in England and Wales is defined by the government as the process of becoming ‘free from overwhelming debts so you can make a fresh start, subject to some restrictions’.
The law has evolved over several centuries and nowadays of course, things are much more civilised. In the past, however, there were some gruesome punishments inflicted on ‘naughty’ Bankrupts.
For example, in the early sixteen hundreds, those refusing to talk to the authorities about their assets were put in to pillories, onto which their ears were nailed, eventually being cut off. In the seventeen hundreds, hanging was introduced for the same offence. Charles Dickens also famously chronicled the plight of the debtor and Bankrupt in his writing during the eighteen hundreds and ‘debtors prisons’ came into common parlance.
Things are not as extreme in today’s society, of course. There are however a raft of punishments available to the Insolvency Service should a Bankrupt wilfully attempt to put assets beyond creditors. Farleys’ insolvency solicitors recently acted for a client who had been made Bankrupt in the Magistrates Court, but had failed to disclose to the Official Receiver an account containing Â£12,000.00, of which half was spent while he was Bankrupt. He had no previous offences, but only just managed to avoid being sent to prison, escaping with a high level community penalty.
However, the law has developed in England and Wales over the years and has gradually become more focused on rehabilitation rather than stigmatising those made Bankrupt.
The Enterprise Act 2002 was an attempt by the previous Labour government to make Bankruptcy less of a stigma. It reduced the time someone was to remain Bankrupt from three years to one year. The thinking was that it would allow entrepreneurs who had failed with a business venture to re-establish themselves in the market sooner and to create wealth and jobs again after one year rather than three. Pension funds where excluded as an asset in the Bankruptcy and therefore could not be touched by the Official Receiver or Trustee in Bankruptcy. This made Bankruptcy in many cases more of an attractive financial solution to someone’s debts than it had previously been, and as personal insolvency solicitors, we are certainly seeing this start to filter through.
There is now talk that a Bankrupt’s details will not be published in the local paper and I am hearing anecdotally that many local Official Receiver’s offices are not listing the Bankrupt’s names in papers in order to save time and costs.
Most people who are made Bankrupt now do not even see a District Judge, the Judge dealing with his Bankruptcy cases prior to Court stating at 10.00am. The debtor is therefore made Bankrupt in his absence. He then has a telephone appointment with the Official Receiver rather than the face to face meeting of years gone by. All this is done to save time and costs with regard to the Official Receiver who is overworked due to the increasing numbers of Bankruptcies with the staffing staying at the same level.
Whiles these measures and the Bankruptcy laws evolving over the centuries have gone some way to stop the more draconian punishments, there undoubtedly remains a stigma for a lot of people in being made Bankrupt.
People in financial difficulties need to remember that today’s Bankruptcy laws are much more lenient.