Bankruptcy period could be extended from 1 to 3 years under new proposals by insolvency professionals

By THIS IS MONEY REPORTER

Updated: 09:30 EST, 18 January 2014

Individuals declaring bankruptcy could be subject to restrictions for longer if proposals to increase the average period of bankruptcy from one to three years are accepted.

Trade association for insolvency firms R3 called for bankruptcy terms to be extended in order to allow more time to investigate the financial affairs of bankrupts, who would have to follow restrictions - such as the ban to create new business or to act as a director of a company - for three years instead of one.

The report by R3 also suggested people declaring bankruptcy should be given the chance to pay the £700 upfront fee in instalments and that the period of bankruptcy for the 'most culpable' individuals should be raised to 15 years.

Bankruptcy: Trade association for insolvency firms R3 wants to increase the average period of bankruptcy from one to three years to allow more time for investigation

R3 Council member Louise Brittain said: 'When an individual enters bankruptcy there are certain investigations that can only be done within that one-year period.

'But in some cases it can take considerably longer than this to investigate a person’s position.'

Individuals can apply for bankruptcy if they are unable to pay their debts or can be forced into it by creditors whom they owe more than £750.

An increase in the use of payday loans and other forms of unsecured debt has been the main drive behind the near 200 per cent rise in insolvencies over the last ten years.

And despite a fall in the number of insolvencies over the past year, experts have warned that this does not reflect the true struggle many are having with their finances.

Bankruptcy has been dropping, but this may partly be explained by the introduction of Debt Relief Orders in 2009

'We are starting to see more professionals enter into bankruptcy,' said Brittain. 'That’s been a real surprise and shows that although the overall numbers are falling we’re not out of the woods yet.'

Recent official statistics from The Insolvency Service showed that there were 26,030 people declared bankrupt between July and September 2013 - a fall on the previous year, but a 1.2 per cent rise on the previous quarter.

Personal bankruptcies continue to fall partly thanks to the rise of debt relief orders (DROs) and individual voluntary agreements (IVAs).

DROs, which were introduced in 2009, work in a similar way to bankruptcy, but are cheaper to apply for and is available to people with debts of less than £15,000 - a threshold which R3 would like to raise.

IVAs meanwhile see people making a legally binding agreement with their creditors that they will pay off as much as they can over the next five years.