New Insolvency Rules From 1st October 2015

The Government is introducing new legislation on 1 October 2015 that could make life easier for some of the UK’s most financially vulnerable consumers. This article from insolvency advice specialists, Bankruptcy Clinic, gives an overview of the changes that will affect bankruptcy and Debt Relief Orders (DROs) from this date.

bankruptcy rules

New £5,000 minimum debt level for bankruptcy

The current bankruptcy debt threshold of £750 has been in place since 1986. This low figure meant that creditors were entitled to try and force consumers into bankruptcy over relatively small debt amounts. Of course, bankruptcy petitions often involve much larger sums, but the new £5,000 threshold will help protect some of society’s most vulnerable consumers from being pushed into bankruptcy by unscrupulous creditors.


By raising the minimum debt level, the Government is hoping to steer creditors towards different ways of recovering debt that will have less impact on people’s lives. For example, taking action through the small claims court or seeking an attachment of earnings. Debt advice firms and charities are also hoping that the legislative changes will help raise consumer awareness around alternatives to bankruptcy – including Debt Relief Orders – and encourage people to explore all their options before deciding what to do.


Andy Gorton, Bankruptcy Clinic’s Managing Director, comments: ‘The £5,000 threshold is great news for people who were at risk of being made bankrupt over relatively low debt amounts. It’s true that bankruptcy can be the best solution for people with few or no assets and little or no income. But not if it means losing your home, car, job or business over debts that would be better managed through a different solution like a DRO or IVA.’


New £20,000 debt limit for Debt Relief Orders

DROs were introduced in 2009 to help people avoid bankruptcy by giving them a chance to improve their circumstances whilst taking a break from their debt repayments. The criteria for qualifying for a DRO are very strict and, until 1 October 2015, included owing no more than £15,000 in total.


However, due to inflation and the effects of the recent recession, it’s become increasingly clear that the £15,000 cut-off point has been denying many people access to DROs who could have benefited from the solution. Hence the decision to increase the threshold to £2,000 from 1 October. By doing so, the Government is hoping to enable an extra 3,600 people a year to enter into a DRO.


As well as the increased total debt limit, the limit on the value of any assets that a DRO applicant can hold will increase from £300 to £1,000. As before, a car worth up to £1,000 will also be allowed, and the maximum disposable income amount will remain the same at £50 a month. Applicants will still need to pay a £90 court fee – but this is much lower than the court and administration fees for declaring bankruptcy, which usually total £705 for an individual.


Says Andy: ‘The change in the DRO debt limit is a big step in the right direction as it means that bankruptcy will effectively be reserved only for the very largest and most unmanageable debts – which is as it should be. A DRO is a great alternative as it gives you the chance to get back on your feet again without being chased or harassed by your creditors. And if you’re still struggling by the time the DRO comes to an end, usually after 12 months, most or all of your debts will be written off, so you can make a fresh start.

Andy Gorton is the author and editor of the Bankruptcy Clinic

Andy Gorton – who has written posts on Bankruptcy Clinic Blog.

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