A relaxation of the legislation on bankruptcy could leave banks, credit card companies, lenders and ...
A relaxation of the legislation on bankruptcy could leave banks, credit card companies, lenders and financial services firms with hundreds of thousands of pounds of unpaid debt, says a London law firm.
Insolvency specialists at city law firm Lawrence Graham say the proposed Enterprise Act 2002 makes the threat of bankruptcy less inhibiting because the bankrupt is able to walk away from those debts after three years.
Nick Pike, partner at Lawrence Graham, says the more lenient approach to bankruptcy allows individuals to be back in business and become the director of a company again after one year - compared with the minimum of three years on today's statute - while those chasing payments for the debt have only three years to reclaim lost monies.
"Existing bankruptcy regulations are quite strict. You are banned from acting as a company director for three years and the trustee in bankruptcy (the person charged by the courts with recovering the money you owe) is empowered to sell your assets any time in the future until your debt is discharged," says Pike.
"This means that if you had no assets at the time of your bankruptcy and your home was in negative equity, a situation that unfortunately happened to many people in the 1980s, the trustee is still fully entitled to pursue you several years later once the property market has recovered and insist on repayment of your debt.
"New legislation is proposing that an individual is banned from running a business for only one year but far more significantly that the trustee in bankruptcy has just 3 years to recover property from a debtor," he adds.
"This means that an individual could borrow heavily from banks and other lenders, take out several credit cards and use the maximum credit limit and then on being declared bankrupt would have huge debts and, if they didn't own a home, no realisable assets. 12 months later it might be possible to walk away from the debt almost unscathed."
A document was released by the OFT today which details all of the Enterprise Act 2002 except part 10 relating to insolvency law.
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