New research suggests people feel that bankruptcy is just too easy. We consider how easy it actually is to go Bankrupt.

The survey by insolvency trade body R3, found 82 per cent believe that people take advantage of the bankruptcy system to write off debts they built up through reckless spending.

Over half the population believes the penalties for going bankrupt should last longer than a year and nearly two thirds of the survey respondents also thought that bankrupts should be treated differently according to their prior spending behaviour.

However is bankruptcy really such a simple way to write off debt? We investigate the reality of going bankrupt and find out whether it really is too easy.

Have recent changes made bankruptcy easier?

In 2004 the bankruptcy laws were changed – reducing the time a person remains bankrupt from three years to one year.

The change was intended to help business people get back on their feet more quickly, but has also seems to have made it less onerous for individuals to declare themselves bankrupt.

However James Falla, personal debt expert at BeatMyDebt.com disagrees.

“It is true that the time someone remains bankrupt was reduced in 2004 down to 1 year. However the real affects of Bankruptcy remain the same. If you are able to make payments towards your debt you still have to do so. These payments still last for 3 years as per the pre 2004 rules.

In addition if you are a homeowner with equity in your property, your home may have to be sold to raise funds for your creditors. These things should not be taken lightly” Falla said.

However Falla added that compared to other debt management solutions such as a Debt Management Plan or Individual Voluntary Arrangement, for some people Bankruptcy could be a far quicker and cheaper way of becoming debt free.

Would tightening bankruptcy rules reduce reckless spending?

R3 said that 65 per cent of people believe most of those declared bankrupt could have avoided it simply by reigning in reckless spending.

R3 president Lee Manning said this feeling could be ‘fuelled by stories of celebrity debtors’ and that there is ‘support for a move to distinguish the genuine hardship case from the reckless spender’.

‘Only by extending the term of bankruptcy, not just the restrictions, can we really hope to deter reckless spending.’ He said

However James Falla said that in his experience of helping people with personal financial difficulties over the past 15 years very few had engaged in reckless spending before making the decision to declare themselves bankrupt.

“The vast majority of people we help who decide to declare themselves bankrupt find themselves struggling with debt because of a major financial upset. Perhaps a period of unemployment, illness or a new addition to the family. They decide to declare themselves bankrupt with great regret and have certainly not brought it upon themselves by simply spending too much” Falla said.