Mr Shatter’s Personal Insolvency Bill is proposing that individuals will be able to emerge from bankruptcy after just three years rather than the current 12.
The laws should also mean that people with no assets can write off debt within a short period and engage in non-judicial settlement of debt.
Paul Joyce, Free Legal Advice Centres senior policy researcher, said the legislation was coming “far too late” but it was better late than never.
“We hope the bill will be out by the end of the year as we don’t know yet what it will look like and there are many unanswered questions as this is a highly complex area.”
Mr Joyce said the bill is based on a three-pronged reform:
* That the court-based bankruptcy system for businesses will be overhauled.
* There will be in parallel a non-judicial debt settlement aimed at consumer debt.
* There will be debt relief orders, which are likely to be available for people with no income and no assets.
“We don’t yet know who will oversee the non-judicial side of things. We need a proper debt resolution service where people can be assisted by money advisers and insolvency practitioners,” said Mr Joyce.
In relation to debt relief orders, Mr Joyce said they will be for extreme cases where there really is no hope of repayment in the short term.
“This will be a very quick bankruptcy that will happen in about 12 months, but people will really have to be able to show that they are incapable of paying.”
Mr Joyce said there was no magic bullet, and people should not think they will simply be able to apply for bankruptcy and get it, or see it as an easy option.
“People will have to go through a fairly rigorous insolvency test and, if they qualify, they will repay what they can over a period of three to five years with a view to having unsecured debt written off at that time. But that means leaving people’s income on the table for creditors.
“We must ensure there is a minimum income that people are left with enough to get by during those years or else it will not work.”