Personal Insolvency Review: Progress update issued by the Insolvency Service

The Insolvency Service has published its latest update on the Personal Insolvency Review (PIR), outlining early thinking on potential reforms to the personal insolvency framework in England and Wales. While not yet government policy, the update signals a clear direction of travel—towards simplification, greater emphasis on debt relief, and a more modern, accessible regime.

Background

The PIR was launched to address long-standing concerns about the complexity, fairness and effectiveness of the personal insolvency regime in England and Wales. This latest update builds on the findings of the 2023 Call for Evidence and the 2024 stakeholder workshops, which explored four key areas: Routes into insolvency, barriers to entry, assets and repayment, and dealing with misconduct.

The Insolvency Service acknowledges that the current regime—comprising bankruptcy, Individual Voluntary Arrangements (IVAs) and Debt Relief Orders (DROs)—presents a confusing and often inefficient landscape for individuals in financial distress. The update reflects a growing consensus that the system should prioritise debt relief and rehabilitation, while maintaining appropriate safeguards for creditors and the public interest.

What is being proposed

A shift towards debt relief and a “fresh start”

The update makes clear that the regime should better reflect modern attitudes to debt, recognising that most over-indebtedness arises from unforeseen circumstances rather than moral failure. The Insolvency Service is exploring how to place the principle of a “fresh start” at the heart of the regime, aligning with international best practice and economic evidence that supports the wider societal benefits of effective debt relief.

Structural simplification

One of the most significant proposals under consideration is the creation of a single personal insolvency process for most consumers – something which we proposed in our PIR consultation response. This would aim to reduce complexity, improve outcomes, and address inefficiencies in the current system—particularly in the IVA market, where fees and failure rates have raised concerns.

While the update stops short of recommending a specific model, it suggests that a new process could be based on the DRO framework, with added mechanisms to deal with assets and misconduct where necessary. Bankruptcy and IVAs would still have a role in more complex or creditor-initiated cases.

Embedding debt advice

The Insolvency Service is also considering how to embed high-quality, independent debt advice into the insolvency process. Drawing on models from Scotland, the US and Canada, the update explores the potential for a single gateway into insolvency, where individuals would be required to engage with an approved adviser before entering a formal process.

This reflects concerns about poor decision-making under financial stress, and the need to ensure that individuals understand their options and the consequences of insolvency. However, the update acknowledges that funding and delivery models for debt advice remain unresolved.

Reforming debt repayment mechanisms

The update highlights inefficiencies in the current IVA process, particularly for consumers with limited assets. It suggests that a more streamlined repayment mechanism could better balance the interests of debtors, creditors and the insolvency system itself. Areas under review include oversight, approval mechanisms, variation processes, repayment levels and fee structures.

Rethinking enforcement and stigma

The update calls for a more proportionate and targeted approach to enforcement, using technology and data to identify cases of concern rather than subjecting all individuals to intrusive investigations. It also questions the value of standard restrictions and pejorative terminology, arguing that these reinforce stigma and deter people from seeking help.

Next steps

The Insolvency Service is continuing to develop its thinking and will in due course set out its proposals to government who may or may not agree with them. The update highlights that other areas where there will need to be further consideration include the impact of insolvency on the home (both in the context of people who live in rented accommodation and homeowners); and how insolvency can more efficiently deal with individuals engaged in self-employment businesses.

In the meantime, the Insolvency Service has indicated that they would welcome further input from stakeholders. Any government adopted policy reforms will be subject to full consultation before legislation is introduced. 

In the meantime, the update provides a clear indication of the direction of reform: towards a simpler, fairer and more effective personal insolvency regime that better serves individuals, creditors and the wider economy.

Impact on Scotland and Northern Ireland

The PIR is only concerned with the system that applies in England and Wales. The personal insolvency framework is devolved to local administrations in both Scotland and Northern Ireland.

Scotland is already carrying out a review, in the form of the Stage 3 Review of Statutory Debt Solutions being reported on by Yvonne MacDermid. While it’s difficult to draw direct comparisons, the update from the Insolvency Service appears to indicate a far more radical approach to development than that which has so far been indicated in the MacDermid review. It would be concerning if there was widespread divergence in personal insolvency regimes across the UK as this would likely result in substantial difficulties and increased costs to businesses where creditors are predominately working across the jurisdictions. We’ll therefore be calling on MacDermid to reflect on the PIR progress update and consider whether far more radical proposals are required in her final report.

So far there has been no indication of detailed consideration of legislative changes impacting Northern Ireland. However, the Insolvency Service have previously indicated that they are engaged with devolved administrations across the UK as part of their discussions.

Read the PIR update