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THE ENTERPRISE ACT 2002 – Personal Insolvency

21 July 2004

The Enterprise Act 2002 takes a fresh look in Insolvency provisions for individuals.

A principle aim of the Act is to help promote reduce the stigma associated with individual Bankruptcy.

The aims of the Act in relation to personal insolvency are:-

Provide a fresh start for Bankrupts
Provide a tough regime for the irresponsible and the reckless.
Improve returns to Creditors by removal of Crown preference.

The main changes in relation to individual insolvency are:-

Automatic and early discharge

With Bankrupts being automatically discharged within a year and possibly earlier.

Bankruptcy Restriction Orders

Provide a new and, tougher and more restrictive regime for those Bankrupts guilty of misconduct whereby a Bankrupt may be subject a Bankruptcy restriction order for anywhere between 2 – 15 years. Only the Secretary of State or the Official Receiver can apply for a BRO if they are in the view that it was in the public interest to do so, any applications must

however, be made within 1 year of the Bankruptcy.

Individual Payment Agreement/Individual Payment Orders

Provide for the Bankrupt to either agree to pay surplus income to the Creditors or be ordered to do so by the Court. Under such an arrangement minimum surplus the Bankrupts allowed to keep is £100.00 above that 50% of surplus income will be paid to Creditors for 3

years even with the Bankrupt having been discharged after a year.

Bankrupts Home

The Official Receiver or Trustee in Bankruptcy now has a 3 year limit in which to realise any interest in the Bankrupts home. Previously there was no limit with the Trustees coming out of the woodwork decades after the Bankruptcy to realise all the equity in the Bankrupts property. For somebody who has been made Bankrupt prior to 1st April 2004 the Trustee in Bankruptcy will have until the 1st April 2007 to realise their interest in the Bankrupts home.

Fast Track Individual Voluntary Arrangements

These may be entered into after the Bankruptcy Order has been made with the Official Receiver for a modest fee. This will have the effect however, of annulling the Bankruptcy straight away however, a Fast Track IVA may go on for more than 3 years which is not the case under an IPA or an IPO.

Effects of the Bankruptcy

The Bankrupt will lose control of their assets except for those required for the provision for reasonable living. They are at risk of loosing their home.

Surplus income will be paid to the Creditors or have an adverse credit rating with it being an offence to obtain credit for figures above £250.00 without the approval of the Trustee they may be a subject of a Bankruptcy Restriction Order up to a period of 15 years.

For further information on this Act please contact:

Jackie Revell
Solicitor/Litigation Department
01753 734827
jrevell@hclaw.co.uk