Bankruptcy and Debt Relief Order Changes

On 1 October 2015 significant changes will come into effect and will affect enforcement options for Creditors owed less than £5,000.00.

Bankruptcy

As from that date it will no longer be possible to issue a Bankruptcy Petition where the debt owed is less than £5,000.00.  Currently a Bankruptcy Petition can be issued for a debt of £750.00.  This is the first increase in this limit since 1986.

This change will obviously benefit Debtors who owe less than £5,000.00 as they cannot be made bankrupt.  It is not, however, good news for Creditors as the threat of Bankruptcy is a very powerful tool if the Debtor is able to pay but is simply trying to  delay making payment.

The change will mean, we suspect,  more claims being made through the Small Claims Court which can be a lengthy process and is not always cost effective especially as Court fees usually increase each year.

The other alternative will be to attempt to resolve matters out of Court by entering into repayment plans with Debtors but if the arrangement breaks down then the Small Claims Court may be the only remedy available.

Debt Relief Orders

Important changes are also taking place in relation to Debt Relief Orders ("DRO") which are orders which write off a Debtor's debts after a 12 month period has elapsed.  A Debtor's right to seek such an order is limited by the amount of the debt they owe and by the assets and surplus income they may have.  As with Bankruptcy Petitions the level of debt a Debtor may owe and still retain the right to seek a DRO is increasing, this time from £15,000.00 to £20,000.00.  The level of assets a Debtor is entitled to have and still retain the right to seek a DRO is also increasing, this time from £300.00 to £1,000.00.  These changes mean a Debtor will now be able to apply for a DRO if they owe up to £20,000.00, have assets worth no more than £1,000.00, own a vehicle worth no more than £1,000.00 and have a surplus income of no more than £50.00 per month.

All these changes assist Debtors and add further difficulty to what is already a difficult task for Creditors to secure payment of debts owed to them.

Posted on: 08/09/2015

This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.

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