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Changes to bankruptcy threshold on the horizon

View profile for Matthew Fretten
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In January this year the Government announced that they intend to increase the minimum sum due for for creditor bankruptcy petitions from £750 to £5,000. The changes will take place in October of this year. The maximum level of debt for which a Debt Relief Order (DRO) can be obtained is to rise from £15,000 to £20,000.

Commercial Partner, Matthew Fretten, says, “Whilst the present creditor threshold of £750 is now very outdated and has not been changed since 1986 the change is long overdue. However, the increase of just below 700% has come as a surprise to many. It has long been understood that for an individual to lose their home and business for a debt of £750 is grossly unfair.” The insolvency procedure is presumed to find a fair balance between the interests of the debtors and creditors and it has been questioned whether such a huge increase in the threshold maintains that balance.

Creditors who issue a statutory demand and use bankruptcy to pressurise debtors for payment is a misuse of the system but often brings about the desired result – payment of debts. Probably the only way, after these changes, to collect a debt of less than £5,000 will be through the small claims court. This can often be a lengthy process and not always effective. Add to this the cuts in Court Service funding and an expected rise in Court fees and the prospect is not very attractive. Businesses will need to keep a close eye on their credit control and renew their options for debt recovery.

We have offices in Christchurch and the New Forest. Our Commercial team also cover Bournemouth and Poole. For a free initial chat, please call 01202 499255 and Matthew or a member of the team will be happy to discuss any questions that you may have.