Government proposes major reforms to personal insolvency law

by Gill Montia

Story link: Government proposes major reforms to personal insolvency law

The Government has outlined plans to reform personal insolvency legislation.

The proposals, which are contained in a consultation paper from the Ministry of Justice, would allow consumers who fall into financial difficulties through a change of circumstance to apply for a court order that would allow them to stop paying their debts for up to one year.

Changes such as redundancy or divorce would be considered reasonable grounds for an Enforcement Restriction Order (ERO), which would cover personal loans, credit cards and some other debts.

No upper debt limit would be applied but the borrower would have to show that he or she could reasonably expect to make repayments when the ERO comes to an end.

Interest would, in most cases, continue to accrue during an ERO but borrowers would not be charged penalty fees and all enforcement action by creditors would be stopped during the term of the order.

Debts excluded under the proposed legislation include child maintenance payments, student loan payments, mortgage payments and fines.

Utility bills, rent arrears and council tax may also be excluded.

The Finance & Leasing Association, which represents the credit industry, is broadly in agreement with the proposals but is keen to ensure that the new legislation would not prevent finance companies from reclaiming their asset if, for example, a borrower defaults on a loan for a car.

A period of consultation is now underway and will conclude on 16th April.