THE government has introduced new bankruptcy laws, which aim to encourage enterprise while cracking down on irresponsible and reckless creditors.

The Enterprise Act, billed as the biggest shake-up of personal insolvency laws for a generation, marks the end of the so-called "one size fits all" approach to bankruptcy.

The Department of Trade and Industry says it has introduced a fairer regime for those who have failed through no fault of their own, backed up by tough new measures for the minority of bankrupts who take advantage of their creditors and the public.

The act provides for the automatic discharge of bankrupts after a maximum of 12 months (currently two to three years). It introduces bankruptcy restriction orders to protect the public and business community from bankrupts whose conduct is reckless, culpable or irresponsible.

It introduces income payments agreements - a new way of repaying debts to creditors from the bankrupt's income - fast track voluntary arrangements, which enable the bankruptcy order to be annulled in return for increased or speedier returns for creditors, removes unnecessary restrictions on bankrupts and limits to three years the period in which a trustee may deal with a bankrupt's home.

Consumer minister Gerry Sutcliffe said: "Business is a dynamic process and difficulties and failure are an inevitable part of an enterprise economy.

"However the fear and consequences of honest failure should not be so disproportionate that they act as a disincentive to entrepreneurs.

"If we are to build a truly enterprising economy we need an insolvency regime that supports, rather than stifles, the development and growth of new businesses and helps reduce the consequences of failure," Mr Sutcliffe said.

Under the legislation, a bankrupt will still risk losing his or her home and possessions, which will be sold to pay outstanding debts, and face restrictions on finances, such as getting a mortgage, bank account or future credit.

They will have their bankruptcy advertised and recorded on a public register, they should continue to make payments to creditors and could face prosecution if they are found to be dishonest.

A system of income payment agreements aims to make it easier for bankrupts to make payments to creditors and bankruptcy restriction orders cover a variety of conduct.

They last between two and 15 years and impose restrictions on obtaining credit of more than £500 without disclosing status, trading in a name/style other than the one in which the bankruptcy order was made, and acting as a director.

Breaching an order will be a criminal offence.