Bankruptcy costs set to sky-rocket

The cost of bankruptcy is set to soar, The Insolvency Service has announced.

As of June 1, anyone wishing to enter into a bankruptcy agreement will have to pay £525 towards the costs of administering the bankruptcy.

This figure is in addition to the court fee, which is £175, although the court fee can be waived if the person is on income support for example.

The administration cost has seen an increase of £75, up from the current rate of £450.

The cost of creditor`s petition bankruptcies will also rise, going from £600 to £700.

The news comes as figures from Experian show that the number of middle class parents who experienced bankruptcy last year increased by 45 per cent in the past year.

Ministers have warned that the average middle class family now faces an income drop of around £1,500, as the cost of living rises whilst wages remain static.

The reasons put forward for the significant increase in bankruptcy rates for middle class families include unemployment levels, debt management problems, home repossession and divorce rates.

Experian’s Simon Waller said: “The economic downturn has hit different people at different times. While they continue to be at lower than average risk of insolvency, some middle-income suburbanite families from typically middle class and skilled working class backgrounds have struggled throughout 2010.

For these people, their home is likely to be a very significant financial investment, and a serious event such as redundancy or marital breakdown can be enough to push some over the edge.”

Many people find an IVA or Debt Relief Order (DRO) is a more appropriate way to address their debts.

In 2010 the number of people entering insolvency through bankruptcy accounted for less than half the total number of insolvencies.

Las year 59,194 people in England and Wales entered bankruptcy, while 50,716 entered into IVAs and 25,179 chose DRO.

Source: www.debtmanagementtoday.co.uk