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Mr. Waterson: I am grateful to the Minister for explaining the thinking behind the new clause. As she rightly says, it is based on a similar amendment which the hon. Member for South Ribble (Mr. Borrow) tabled in Committee. As she also said, a central reason for the new

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clause is removing the stigma of bankruptcy. The Opposition and the Government differ sharply on the matter. As the Minister knows from our Committee proceedings, we have genuine anxieties about whether removing the stigma to the extent for which the Bill provides is commendable. We have examined in some detail experience in the USA, Hong Kong and Scotland to ascertain what has happened in other parts of the world where similar proposals pertain.

Mr. McWalter: The hon. Gentleman mentions removing the stigma on bankrupts. Does he accept that the new clause would remove it from some but possibly make it worse for those whom one might regard as maleficent bankrupts?

Mr. Waterson: Clearly, it affects bankrupts who have a substantial asset in the form of a home in which they live. However, I am sure that the hon. Gentleman and the Minister accept that the new clause is part of the general philosophy of the provisions that we are considering: removing the stigma of bankruptcy, and making it easier for people to become bankrupt and come out of bankruptcy. The argument for that is based on the unsustainable proposition of culpable and non-culpable bankrupts. We do not accept that, and we have argued for a third category: the pathological optimists, who do not mean any harm but leave a trail of debt and destruction.

It is instructive to examine the Minister's initial reaction to what was new clause 12, which the hon. Member for South Ribble tabled in Committee. She did not greet it with special enthusiasm,

"A Fresh Start" is the title of the White Paper, and the Minister herself made those remarks.

In Committee, we covered the point that English law makes no distinction between personal and corporate insolvency. We know that after the changes in the law in the USA, 1.5 million bankruptcies a year there have nothing to do with business. The vast proportion constitute consumers who are wiping out consumer—usually credit card—debt. We must be under no illusions about the provision being directed at individuals who run up personal credit bills. In many cases, the only asset available to their creditors will be the remaining equity in their homes. With the current explosion in consumer credit, this problem is likely to get worse rather than better.

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In addition, another part of the Bill contributes to the problem that will arise from new clause 6. That involves the more limited time that will be available to investigate bankrupts and their assets before they are discharged from bankruptcy. We shall investigate this matter in greater detail under the eighth group of amendments. The Bill sets out a period of 12 months, but makes it clear that, for many bankrupts, that will be the upper ceiling, and that they will come out of bankruptcy well within the 12-month period. One of the arguments against the three-year period relates to whether the ownership of a property comes to light in a reasonable time, and I shall come to that in a minute. We want to ensure that, in introducing these changes—which must all be taken together—we do not produce a kind of rogue's charter.

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I am sure that the Minister will concede that excluding a bankrupt's home in certain circumstances is a major issue in this legislation, and the proposal has been introduced very much at the last minute. I concede that there was a discussion based on the new clause tabled in Committee by the hon. Member for South Ribble, although, as I recall, that came towards the end of the Committee's deliberations. The Minister, having promised to come back to us on this matter, has, indeed, produced the Government's own new clause. This has come at a very late stage in relation to our discussions on the Bill last Thursday and today.

There are two aspects to the Government's rather detailed new clause. The first issue relates to a bankrupt's sole or principal residence being returned to them, in principle, after three years. The second issue—to which the Minister did not, perhaps, devote as much time as she should have—involves the provision about low-value homes. Subsection (3) of the new clause proposes that, when a bankrupt's sole or principal residence is involved, and a trustee applies for an order for the sale or possession of the property, or

That is quite a dramatic departure, even from the debate that we had in Committee. As I read that paragraph, it seems to be saying that properties below a certain value will be exempt from the bankruptcy process in any event. Presumably, it leaves the fixing of the value—the so-called low value—to regulation. It would be interesting to hear more of the Minister's thinking about what kind of low value we are talking about.

This measure has the potential to be extremely divisive across the country. How is this low value to be established? Judged by London standards, properties in some parts of the country have a very low value indeed, but only on a comparative basis. What attempts, if any, have been made to consult insolvency practitioners, consumer bodies or the credit industry on the effects of this and the earlier part of the new clause? What is the thinking behind this development concerning low-value properties? How is that term to be defined? What is the basis for it? This provision goes significantly beyond the debate that we had in Committee, and it would be interesting to know precisely what the departmental thinking behind it is.

These major concerns are borne out by a letter that was sent to the Minister by an anonymous insolvency practitioner, a copy of which was also sent to me. This person has practised as an insolvency practitioner for many years, and used to work for the Insolvency Service. His first point was that he was unsure when the three-year period would begin to run. As I read the new clause, it would seem to begin when the bankruptcy starts. The gentleman to whom I refer, however, points out that it might make more sense if the three years ran from when the trustee became aware of the existence of the property.

Miss Melanie Johnson: Subsection (5) states that if the bankrupt does not notify the official receiver or the trustee of the property, the three-year period will be extended.

Mr. Waterson: That is very helpful.

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As I am sure the Minister will accept, it is not unknown for a bankrupt to hide his interest in a property. This is not a situation in which all or even most bankrupts rush to declare all their assets at the beginning of a bankruptcy.

The gentleman I mentioned writes:

Before proceeding, the Minister should at least ask the insolvency profession whether hers is a sensible approach.

We are prepared to concede that, if there is some unfairness, it could be argued that it is experienced by the bankrupt's spouse rather than the bankrupt if he or she has not been kept fully informed. The hon. Member for South Ribble said, not unreasonably, that it was a shock for someone, having initially kept his home, to use it some years later during a bankruptcy; but I understand that that has been addressed for some years by the Insolvency Service itself.

The bankrupt and/or his or her spouse is given the opportunity, in the event of negative or limited positive equity, to purchase the property for a nominal sum—usually £1—with legal costs of no more than £230. It is difficult to believe that the bankrupt or spouse could not raise that kind of money if the offer were made in the usual way. However, the gentleman's letter continues:

The problem seems, however, not to relate so much to the matrimonial home with negative or very limited equity. Any bankrupt with any sense should accept the terms routinely offered. I am told that the practical problem for trustees is dealing with cases in which the bankrupt's share of the equity is perhaps between £2,500 and £10,000, and it is beyond the ability of the bankrupt or his spouse to borrow that sum, but uneconomic for the trustee—in terms of his own fees—to pursue the matter through the courts.

As for bargaining with the bankrupt, the trustee would not give up the potential right to sell the matrimonial home as a way of ensuring a more satisfactory result in terms of the bankruptcy overall. One of the aims of new clause 6 is to prevent such pressure from being exerted on a bankrupt who may be less than willing to volunteer assets or payments to satisfy creditors.

One answer proposed by our anonymous correspondent is that the Insolvency Service should review its files far more regularly, not just when the assets fall into its lap—usually when the bankrupt wants to sell or remortgage his home. He says:

He says, in conclusion:

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On any view, this provision must shift the balance of power between creditors and debtors. It is bound to have a knock-on effect on the credit industry, quite apart from the effects, which we discussed at length in Committee and will discuss at length again today, of other provisions relating, in particular, to personal insolvency. It is important that Ministers and officials consult fully before proceeding with the proposals, because the ghost at the banquet—the law of unintended consequences—is bound to arise again here, as sure as eggs is eggs. As the Opposition, we must at least try to guard against that.

With all due respect to the hon. Member for South Ribble, who advanced arguments that were sometimes simple and emotional, there is always another side to the question. It is important that the Government do not rush to try to right an apparent injustice, when the real injustice is often the one visited on creditors, who may be not banks or credit companies but simply other individuals, family or friends, who have advanced money to a bankrupt. All too often, the lender of last resort is a close family member or friend.

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