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Online bankruptcy applications - a warning from R3

Being able to apply for bankruptcy online might bring some benefits, but it`s important to consider the risks, warns insolvency trade body R3, the Association of Business Recovery Professionals.

The proposed system which would let people apply for bankruptcy online "creates a number of serious risks including impulsive, pressurised and `malicious` bankruptcies", R3`s press release warns.

One of the things which concerns R3 is the timeframe - borrowers would be able to apply for bankruptcy `with near-immediate effect`, and this could mean people end up applying for bankruptcy as a `knee-jerk reaction` to a bad day, or as a result of pressure from bailiffs or debt enforcers.

What`s more, the online application wouldn`t give individuals the personalised advice which is so essential when they`re considering something as serious as bankruptcy.

Peter Sargent, President of R3, said, "Bankruptcy is a serious matter with dramatic consequences. It`s important that people receive proper professional advice before the process begins so they understand what it entails and are aware of the alternative options available to them. Proposed website `pop-ups` along the way are no substitute. Speeding up the application is a laudable aim, but there should also be a `cooling-off` period after submitting the application so people have a chance to reflect and even reconsider."

A spokesperson for the IVA Advisory Centre commented: "For many, bankruptcy is indeed the best way of clearing their debts. But a lot of people who consider bankruptcy may find they`d be better off taking a different approach. R3`s press release specifically mentions that applicants `may be better suited to a milder insolvency procedure` - an IVA or a DRO [Debt Relief Order]."

Then there`s the risk of `malicious applications` - people applying for bankruptcy in someone else`s name. R3 stresses the need for safeguards which can prevent this from happening.

As Mr Sargent put it, "It would be highly distressing to find that bankruptcy proceedings are already under way against you, even though your finances are healthy and you had no intention of applying. We should be looking to prevent this kind of abuse happening by introducing appropriate checks in the system."

Right now, the system is under consultation.

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