A major overhaul of the bankruptcy fee structure is needed the Insolvency Service has warned after declaring it cannot sustain the current level of cases where the assets have no value.
Stephen Speed, agency chief executive of the Insolvency Service, made the warning during a debate on fees generated for insolvency practitioners (IPs) and creditors from bankruptcies at Insolvency Today’s annual conference.
Speed warned that the current volume of asset-less bankruptcy cases the Service received was unsustainable, and had almost reached a point where taxpayer money would be needed to cover the shortfall.
“The issue is who funds fund-less bankruptcies,” he said. “We are trying to get the number of cases down and we have got to reduce cases to a level where recovering costs is not an issue.”
Possible rises in Bankruptcy fees
However James Falla, senior debt expert at Beat My Debt questioned how the Insolvency Service would be able to reduce the level of bankruptcies in the current economic environment and suggested that this might mean a further rise in the fees payable by the individual declaring themselves bankrupt.
“It seems to me that with unemployment at its highest level since the 1990s the number of personal bankruptcies is set to rise rather than fall in the coming months. The financial problem faced by the Insolvency Service is therefore likely to get worse rather than better” he warned.
“I would not be at all surprised if the government’s answer to this was to increase the cost of bankruptcy for the individual once again. But this would be a devastating blow for many people who would be priced out of the debt management solution which is most suitable for them” Falla added.
Bankruptcy trustee’s fees questioned
Speed’s warning comes after the Insolvency Service was forced to write off £81m earlier this year, after taking a hit from fewer assets in insolvent estates and the value of those assets plummeting.
The Insolvency Service currently receives all personal bankruptcy cases through its Official Receiver offices, before they are passed to IPs or dealt with in house.
Gary Jones, head of recoveries and litigation at HSBC, also warned that creditors were looking hard at bankruptcy fees earned by IPs and assessing whether the fees jeopardised the chances of lender’s making a return on the process.
He said: “In consumer bankruptcies the level of assets is such that we very rarely see a return, so for us to focus on the fees being taken out is where we can see the potential for increasing our returns.
“If we are seeing cases where fees are sucking up all the dividends that is where we will focus our attention. It is a less interesting side for us because of the low returns, but that does not mean transparency around fees is not important to us.”
