Changes to the law to prevent people being made bankrupt for low-value debts have been welcomed by North West insolvency practitioners.
As from 1 October, an individual must owe at least £5,000 – instead of £750 at present – before a creditor can ask a court to make them bankrupt.
The changes will also make Debt Relief Orders – a low-cost version of bankruptcy – more accessible for people seeking a solution to debt problems. Debt Relief Orders will be extended to those with under £20,000 of debts instead of £15,000 as at present, and under £1,000 of assets, instead of £300.
According to R3, the trade body for insolvency practitioners, the changes mean that there will be around 2,000 fewer bankruptcies and 3,600 more Debt Relief Orders every year.
Richard Wolff, North West Chair of R3 and Head of Corporate Recovery and Insolvency at law firm JMW, said: “R3 has campaigned to have the bankruptcy threshold increased. At present people can be made bankrupt if they owe just £750, a level set in 1986 and which would have been equivalent to almost £2,000 in 2014. However the new threshold of £5,000 is higher than was recommended by R3 and will need to be monitored to check that creditors are not unfairly affected.
“We also welcome the decision to widen access to Debt Relief Orders, which cost just £90 to enter compared to the £705 upfront fee for bankruptcy. However further changes are needed for individuals who don’t qualify for Debt Relief Orders but also cannot afford to go bankrupt because they cannot pay the £705 fee involved upfront. We believe the petition fee should be payable in instalments after the bankruptcy order has been made. To better protect creditors from people recklessly accumulating debt, we believe that the standard bankruptcy term should be extended from one year back to three years as it used to be, with any variation in that term linked to a person’s behaviour prior to their insolvency.”