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Why are more people opting for the bankruptcy option out of debt?

Since the move to online bankruptcy applications in April last year, new figures suggest there has been a rise in the number of people applying for bankruptcy. With the lower fee and the clickable application, is it convenience and not having to go to court that has sparked this rise or that more people are currently facing debt?

The new system means that bankruptcy applications can be made online without the need to go to court and according to the Insolvency Service, this has diluted the perceived stigma of bankruptcy. Mark Cowley, insolvency manager at debt charity Christians Against Poverty, explains how going to court had an effect on potential bankrupts; “There was a psychological effect in going to court. Many people assumed it was criminal although it is a civil procedure.”

For those suffering from anxiety and/or depression as a result of or in conjunction with their debts, the changes which have taken away having to go to court are welcome. For them, the scary part of bankruptcy was attending court, with that gone they can apply for bankruptcy and get on with their lives building up positive changes to their finances.

Bankruptcy can be particularly beneficial for many people with out-of-control debts, particularly if they do not have any property or major high-value assets. Bankruptcy ends after one year with applications made online to be assessed by an adjudicator of the Insolvency Service.

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The move to online applications not only removed having to go to court but it is also came with a simpler application form to ensure people can understand the questions and complete it in their own time. As Liz Thomas, Adjudicator at the Insolvency Service for England and Wales explains, the form is; “still lengthy. It takes several hours to fill in, and there is information to ensure people understand the seriousness of what they are doing.”

Within two days of submitting your claim, 95% of successful applicants are declared bankrupt. According to the Insolvency Service, the number of individuals who declared themselves bankrupt in the third quarter of 2016, compared with the same time the year before, is up by 7%.

Debt charities in particular are in favour of the new developments for bankruptcy applications as the project seems to have worked well from the way the system works to removing some of the stigma surrounding bankruptcy.

For now, the system is holding up well but insolvencies are at historically low levels currently and there are signs this will be changing soon. It is something Bank of England Governor, Mark Carney, has spoken about before expressing his concern regarding the rising levels of household debt and lower levels of savings we are currently seeing.

However, many feel that unless interest rates rise significantly over a short period of time, the high levels of household debt should be manageable for the majority. Still regardless of the low rate of bankruptcies and manageable debt, there will always be people with debt troubles who will need to apply for bankruptcy and this new online application system makes it all the more simple.

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