Has the government de-stigmatised bankruptcy or created a rogue's charter? David Pomeroy reflects on two of the major recent reforms

Two major bankruptcy reforms came into force on 1 April.

The first allows the trustee three years to realise the matrimonial home before it automatically re-vests in the bankrupt; the second shortens the length of most bankruptcies to one year, or even less in some cases.

The reforms are the most radical since the abolition of debtors' prisons, but some critics have suggested that it is no coincidence they were introduced on April Fools' Day.

During the last recession, record numbers of people were made bankrupt.

Many bankrupts simply did not realise their homes remained vested in the trustee when they were discharged from bankruptcy.

They received a shock when, some years later after the home increased in value, a trustee was appointed to sell it for the benefit of creditors.

The Enterprise Act introduces the so-called use-it-or-lose-it provisions.

The trustee has three years to take one of a number of specified steps to realise the home, otherwise it will automatically re-vest in the bankrupt.

The rationale has always been that the bankrupt should be discharged from his bankruptcy debts in exchange for his assets; a fresh start.

As such, the use-it-or-lose-it provisions are welcome, if not somewhat overdue.

Under the Insolvency Act 1986, a bankrupt was automatically discharged after three years (or after two years in cases of summary administration) unless the official receiver applied to suspend the automatic discharge.

The only exception was a second bankruptcy within 15 years, when the bankrupt had to apply for his discharge - but could only do so after five years.

Under the Enterprise Act, most bankrupts will be discharged after one year, or earlier if the official receiver gives notice either that the bankrupt's affairs do not need to be investigated or the investigation has been completed.

Unless creditors object within 28 days of the notice, the bankrupt will then be discharged.

The official receiver aims to complete the investigation within eight weeks, so a bankrupt could be discharged after just three months.

However, if the bankrupt fails to fulfil his bankruptcy obligations, the court can suspend the automatic discharge for a specified period of time or until conditions have been met.

The trustee can now make the application as well as the official receiver.

In serious cases, the court can make a bankruptcy restriction order, which will last for between two and 15 years and have a number of implications.

It will be a criminal offence to obtain credit of 500 or more without disclosing the existence of the order; to act as a company director or be involved in the promotion, formation or management of a company; or to hold certain public offices.

The government's policy here is to encourage enterprise by de-stigmatising bankruptcy and by differentiating between the 'culpable' and the 'non-culpable' bankrupt.

I question if three months will be long enough for even the most blameless bankrupt to reflect on what went wrong and to learn from his mistakes.

Creditors (banks and credit card companies in particular) have made no secret of their dislike of the reforms.

They argue there is little reason to prevent someone from incurring massive debt if he will be discharged from bankruptcy after three months, or at the most one year.

The reduced period of most bankruptcies should encourage more cautious lending, but I doubt it.

There is too much competition in the marketplace.

David Pomeroy is a partner in the insolvency team at the Exeter office of Bevan Ashford EPL