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A B C D E F G H I J K L M N O P R S T V W Y

Insolvency Update: Increase in Bankruptcy Threshold

Insolvency Update: Increase in Bankruptcy Threshold

Thursday 19th March 2015

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The Brief - Issue 11

The threshold for bankruptcy proceedings or individuals applying for a Debt Relief Order (“DRO”) is set to increase. 

Consultations began in relation to the proposed changes in August 2014 with the reforms anticipated to take effect from 1 October 2015. 

The Changes

  • At present, the threshold for creditors to Petition for an individual’s bankruptcy stands at £750 (Section 267(4) of the Insolvency Act 1986).The proposals see this threshold increase to £5,000.
     
  • Individuals will only be eligible for a DRO if:-
    • They owe up to £20,000 to creditors.The current threshold stands at £15,000;

    • They have assets with a value of £1,000 as opposed to the current threshold of £300.

There will be no change to the maximum monthly surplus income of an individual eligible for a DRO which currently stands, and will remain, at £50.  In addition there will be no change to the 12 month discharge period for DRO’s or the application fee of £90.

Comment

The Insolvency Service have justified these reforms on the basis that the proposed increases reflect today’s cost of living and the corresponding debt owed by the average individual.

Whilst an increase may well have been advisable and necessary, the proposed increase in the threshold for creditors Bankruptcy Petitions is well above the rate of inflation and, it may be said, to have been implemented with the intention of dissuading creditors from using the Bankruptcy process as an aggressive tactic and relatively inexpensive way to collect relatively low levels of debt. 

Whilst this is to be encouraged, one should also view these reforms in tandem with the parallel governmental proposals to increase the court issue fees within civil claims (see link to article). With the increase in civil issue fees, parties may have sought to avoid incurring civil fees by electing to pursue debts via the insolvency route.  The reforms to the bankruptcy threshold sends a clear message to deter parties from taking this view. 

The proposed reforms are subject to Parliamentary scrutiny but are intended to take effect from 1 October 2015.  Therefore, if there are any matters where you may be required to commence bankruptcy proceedings it would be advisable to ensure that any such proceedings are commenced in advance of this deadline failing which, unless the debt is undisputed and in excess of £5,000, the only form of redress will be by the civil courts.

To read more about statutory demands and how they should be used please refer to our additional article in this issue here.

If you would like more information on the increase in bankruptcy threshold or for any other issues you may have, please contact:


Jack Froggatt

Associate
Tel: 0151 600 3338
Email: jack.froggatt@brabners.com