Government publishes personal insolvency reform update

The Government has published the first major update on its Personal Insolvency Framework Review since August 2023, when it released a summary of responses to the 2022 Call for Evidence.

Responding to the update, Nicky Fisher, R3 Personal Insolvency Committee Chair, said “R3 welcomes the Insolvency Service’s continued commitment to reforming the UK’s personal insolvency regime in a way that better reflects contemporary economic realities and the needs of those experiencing financial distress.

“We are encouraged by the review’s emphasis on providing individuals with a meaningful “fresh start” that allows them to build a financially secure future, and its recognition that over-indebtedness is often the result of unforeseen circumstances rather than moral failure. We support the call for embedding independent, upfront debt advice into any future framework. Debt advice is a critical gateway to appropriate debt solutions, and the proposed model of mandatory, impartial engagement—similar to the DRO process—is a promising direction.

“We welcome the recognition of the need for nuanced enforcement and investigation mechanisms that do not stigmatise individuals unnecessarily. The emphasis on dignity, reducing stigma, and reforming terminology used in insolvency discourse is particularly important if the regime is to encourage early engagement and reduce harm to both individuals and creditors.

“We also commend the Service’s efforts to leverage technology in simplifying the personal insolvency regime. It is essential, however, that such advancements are implemented with care and do not diminish the value of human interaction. 

“That said, the review rightly cautions against unintended consequences in simplifying processes. Aligning repayment expectations, creditor involvement, and enforcement across traditionally distinct procedures – such as bankruptcy and IVAs, will require careful calibration to avoid undermining confidence among creditors or inadvertently restricting viable commercial arrangements for more complex cases, including sole traders.

“Finally, we strongly support the review’s collaborative tone and encourage continued stakeholder engagement as policy options are developed. Structural reform of this magnitude must be data-driven, proportionate, and responsive to the full range of creditor and debtor perspectives.
“We look forward to contributing constructively to the next phase of consultation.”