Debt experts' warning over rising bankruptcy costs
The rise in the cost of going bankrupt could discourage people with financial problems from seeking a solution, debt experts are warning.
The fee for petitioning for bankruptcy rose by £75 to £525 at the start of the month. With the court fee added on, the total upfront cost is £700.
The Insolvency Service said the increase was needed to cover the cost of administration.
The charges, including court fees, have gone up by 37% since March last year.
Insolvency practitioner Mark Sands, from RSM Tenon, has warned that the increase would put extra pressure on individuals who were likely to be under stress or depressed.
"So many people flounder around and do not see a way out," he said.
"They are going to be put off exploring bankruptcy as a solution."
The £525 charge is a deposit to cover the cost of managing a bankruptcy, which allows the bankrupt person to throw off the burden of debt and make a fresh start.
The Insolvency Service recovers a full administration fee of £1,715, less the deposit, from the bankrupt's assets or surplus income at a later stage. This sum is not being increased.
"The fee is staying the same but we are increasing the proportion of that fee which we get on day one," said the deputy head of the Insolvency Service, Graham Horne.
The Insolvency Service has seen its income squeezed because of the falling value of homes and other assets which are recovered from bankrupts.
Currently, the £1,715 fee is never fully paid in half of bankruptcies.
There has been some criticism of the rising cost.
"It is unfair to families who are struggling but I felt that any money I had was going to be taken anyway," said a recent bankrupt who spoke to BBC News,
Jon Elwes, from the Money Advice Trust, said: "This increase in the cost of going bankrupt is likely to swell the numbers of people falling through the net of the current insolvency regime.
"Our advisers at National Debtline speak to people everyday for whom bankruptcy would be the best solution to their debt problem, but for the fact they cannot afford the associated fees."
There is now a cheaper and easier alternative, the Debt Relief Order (DRO), which costs £90.
An increasing number of people who are in financial trouble and looking to escape their debts have been avoiding bankruptcy and taking this lower cost route.
In the first quarter of this year there were 6,788 DROs, a 20% rise on the previous year.
However, people can only ask for a DRO if their debts are less than £15,000 and savings and assets are less than £300.
"What if you have £16,000 of debt?", said Mark Sands of RSM Tenon.
"You are faced with that barrier of hundreds of pounds before you can opt for bankruptcy to resolve your difficulties."
Una Farrell, from the Consumer Credit Counselling Service, said: "It is a very steep rise. We already have to do a lot of work helping our clients to get the money together to pay the fees."
But Mr Horne said the Insolvency Service was obliged by Parliament to break even, a task which had become increasingly difficult.
"It has always been our policy that if bankrupts can pay something towards their debts then they should," he said.
"We have to strike a balance between giving bankrupts debt relief and a fresh start, and the need to provide some return to creditors."