The debt level that can trigger bankruptcy proceedings could change for the first time in almost 30 years as the result of a government consultation.
The government’s Insolvency Service is seeking views on proposals to increase the bankruptcy debt threshold, set at £750 in 1986. It is also asking for feedback on how debt relief orders (DROs), which were introduced five years ago for people with debts of less than £15,000 and no means of paying them off, could be improved.
Announcing the call for evidence on 6 August, Business Minister Jo Swinson said: “Bankruptcy has serious consequences and there is a strong argument that bankrupting someone for a debt of £750 is no longer fair or reasonable, especially when there are often alternative cheaper ways for those owed money to seek repayment.
“I’m also keen to ensure that debt relief orders continue to meet the objective of helping the most financially vulnerable with a low-cost way out of problem debt.”
If the bankruptcy threshold had risen annually in line with inflation, it would now be £1,700. A threshold set at £2,000 would have removed 400 petitions last year – (three per cent of all cases in 2013-14), while a £3,000 threshold would have taken 1,000 cases (eight per cent) out of the bankruptcy process.
Gillian Guy, chief executive of Citizens Advice, said the current £750 limit meant that many people who had sought help from the organisation over a payday or logbook loan could be declared bankrupt. She added: “Enforcing bankruptcy is a power that should only be available as a last resort for creditors.”
Mike O’Connor, chief executive of the StepChange debt charity said it welcomed the review of DROs, which allow someone with assets of less than £300, debts of no more than £15,000 and surplus income of less than £50 per month to apply for a DRO.
The order lasts for 12 months, during which creditors cannot take debt recovery action without court permission. At the end of the year, the debtor will be free of all the debts listed in the order provided their circumstances have not changed.
He said: “It is timely to evaluate how they are working, how they can help more people at lower cost to individuals and to the debt advice charities who help people set them up.”
For anyone facing financial difficulties, seeking professional advice at as early a stage as possible can make all the difference, because more options will be available to resolve the debt or insolvency issue.
At Palmers, our experts can provide expert advice on all types of individual insolvency situations, including individual voluntary arrangements, which are agreements with creditors to pay all or part of your debts over a period of time. The amount of debt involved is usually at least £15,000.