The UK could be set for a wave in what is known as ‘bankruptcy tourism’ from other European Union nations, as laws in the UK relating to bankruptcy are often shorter, and only involve the setting up of a temporary address.

Britain’s laws usually only require one year before those filing for bankruptcy are debt free, compared to the penalty period of seven years in Germany and twelve in Ireland.

Current EU rules mean that bankruptcy in the UK must be recognised by other EU nations, allowing a foreigner to become bankrupt in the UK to benefit from the lenient one-year rule and return to their home country.

59 Foreigners have benefited from the rule this year until March, residing in the UK for less than 12 months while most of the debts were abroad, and returning to their home nations.

Insolvency expert Neil Smyth believes that the numbers will increase as the recession continues which will also push up the cost of bankruptcy for debtors in the process.

In spite of the relatively small figures of the number of people filing for bankruptcy, almost 19,000 bankruptcies were reported between April and June this year.

Mr Smyth said: ‘This problem can only get worse with time as more and more people become unemployed across Europe and realise the disparity in bankruptcy laws between member states.

‘We have even heard about companies setting up in Germany that set clients up with a temporary address and help them to jump through the various hoops to become bankrupt over here.’

Bankruptcy in the UK generally involves a court fee of £150 and £360 to be paid to an official receiver how handles the paperwork, but the cost of investigation is often a lot higher when involving foreign assets and creditors.

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