Insolvency Service calls to change bankruptcy debt threshold

5 August 2014

The Insolvency Service is investigating the current bankruptcy debt threshold set for individuals. Currently, a creditor can petition bankruptcy if the debtor owes only £750, something which many believe is too low.

In fact, this threshold has not been moved in 28 years (which seems preposterous given inflation rates!). If it had been raised, then a substantial number of bankruptcies could have been avoided altogether

Not only does the government department want to increase the £750 threshold, it also wants to look into improvements on debt relief orders (DROs) – given to those who are particularly vulnerable financially and unable to pay debt back. The systems and how DROs are handled need to be reviewed so debtors have access to help when they need it the most. 

R3 President, Giles Frampton, commented "This review is very welcome. R3 has called for DROs to be reviewed for some time and we are pleased the Insolvency Service is taking action. Although DROs are only a relatively new part of our personal insolvency landscape, personal debt issues move on so quickly that it is already time to look at them again".

"We are particularly pleased that the creditors’ bankruptcy petition threshold is being looked at. This was last set in 1986 and an upwards revision is long overdue. £750 is far too low an amount of debt for somebody to be made bankrupt: were the threshold to have risen in line with inflation, it would be worth almost £2,000 now".

More information regarding this investigation can be found on the Government’s website.

UPDATE 15th January 2015: The government has now announced new rules for bankruptcy and DROs including the increase of the bankruptcy threshold from £750 to £5000 (a substantial amount)!

In addition, the maximum amount of debt to be covered by a DRO will increase from £15,000 to £20,000. Both changes will come into force from 1st October 2015. 

 

Great news for individuals struggling to afford bankruptcy costs and who are in need of help. Many people can now avoid facing legal action for small sums of £750 and instead work towards improving their situation.