Personal Insolvency Update - Debt threshold for bankruptcy to increase to £5,000
With effect from 1 October 2015 the debt threshold for a creditor issued bankruptcy petition will increase from £750 to £5,000. The Government's reason behind this large increase is to ensure that bankruptcy, with its serious implications, is reserved for those with sizeable personal debts and is only used if other conventional collection methods fail.
At the same time the eligibility criteria for the alternative to bankruptcy, a Debt Relief Order (DRO), will be widened by increasing the maximum amount of debt owed to £20,000 (from £15,000) and the assets limit to £1,000 (from £300) plus a vehicle (maximum value £1,000). The maximum surplus income allowed will remain at £50 a month.
As a result of these changes the number of people being declared bankrupt or pursuing a voluntary arrangement is likely to fall. Creditors with difficult low value debts to collect will have to pursue payment through alternative processes, such as applications to the 'small claims court' or by agreeing to a repayment plan.
The changes, which are aimed at giving debtors more time to settle their debts, will inevitably result in an increase in the number of claims lodged with the courts. It remains important that individuals facing financial distress consider which type of debt solution is most appropriate for their situation.
The changes will be subject to Parliamentary scrutiny before coming into force.
Date: 23rd January, 2015
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