Government launches review of the personal insolvency framework

7th August 2023

The Government has published a summary of responses to a call for evidence to inform its review of the personal insolvency framework in England and Wales.

The responses cover a review of the underlying purpose of the personal insolvency framework and where the balance should fall between providing debtors with a fresh start and providing returns to creditors.The funding of the framework, whether the burden of costs is apportioned fairly, and some of the wider consequential costs of bankruptcy and asked whether the current personal insolvency procedures are working effectively.

The scope of the call for evidence covered the procedures within the personal insolvency legal framework, namely, bankruptcy, debt relief orders (DROs) and individual voluntary arrangements (IVAs).

The Money Advice Trust, which runs National Debtline and Business Debtline, has welcomed the Government’s response to the Insolvency Service personal insolvency call for evidence but says that action is needed now to help people struggling to access safe routes out of debt. 

 Jane Tully, Director of External Affairs and Partnerships at the Money Advice Trust, said “Today’s response to the review of the personal insolvency framework represents a welcome acknowledgement that reform of current debt options is long overdue.  I am encouraged by the Insolvency Service’s findings that fees attached to Debt Relief Orders and bankruptcy options can be a barrier to people accessing vital support, something we have continued to highlight.”

 “With millions of households already struggling due to the impact of high costs, tackling these barriers, to ensure people are able to access safe routes out of debt, is now more important than ever. We urge the Government to bring in reform as soon as possible.”

“However, action is needed now to help people struggling to access suitable debt options due to fees, especially as the cost of living continues to pile on more pressure. I would encourage anyone worried about their finances to contact National Debtline as soon as possible.”  

Vikki Brownridge, CEO at StepChange Debt Charity, said “We welcome the Insolvency Service’s response today on reforming the UK’s personal insolvency framework, and are pleased to see it recognise existing shortcomings which make accessing and navigating insolvency options a challenge for financially vulnerable individuals.”

“It’s vital that insolvency solutions are accessible and provide a safe route out of debt, leading to long-term good outcomes for consumers. The current framework leaves consumers vulnerable to harm from unaffordable fees, a lack of flexibility and aggressive commercial practices. The mis-selling of Individual Voluntary Arrangements (IVAs) is a particular area of concern that needs urgent action.”

“We look forward to working closely with the Insolvency Service as it looks to make structural reforms to the personal insolvency landscape. In the context of the cost of living crisis, in which people’s financial resilience has been eroded, insolvency must be fit for purpose in providing effective debt relief.”

Nicky Fisher, President of R3, the UK’s insolvency and restructuring trade body said “We welcome the Government’s decision to launch a consultation into the personal insolvency framework, and their recognition that there are shortcomings in the current regime and areas where it could evolve in order to better meet the needs of those who use and work with it.”

“The framework needs to be reformed so that it and its offering reflect the way society operates today and the changes in attitude and approach to personal insolvency – and how much these and the demand on the framework have evolved in the decades since it was developed.”

“Having submitted a detailed response to the previous call-for-evidence and been active in this area of policy for many years, we look forward to working with the Insolvency Service to develop the proposals for the future of the framework, and ensuring that our members’ views and experience are at the front and centre of any debates going forward.”

“At a time when personal insolvency levels are rising and debt charities are reporting an increasing number of demands for their services and numbers of people in negative budgets, we need clear thinking and progress on this issue sooner rather than later.”

“It is clear from the many submissions to the Call for Evidence that this is a complex area, and we recognise it will take time to deliver a personal insolvency framework which works for everyone.”

Proposals for reform of the personal insolvency framework are expected to be published by the Government in early 2024.