Changes to the Personal Insolvency debt threshold have recently been announced which are due to come into effect in October 2015. The proposed changes would mark a significant shift in the options available to creditors pursuing debtors for relatively small debts, and have received mixed views.
How the land lies currently
The current system entitles creditors to present a bankruptcy petition against an individual debtor if there is a debt of £750 and above (s.267 Insolvency Act 1986). For many creditors, the threat of bankruptcy has served as a tactical tool to encourage debtors to come forward with payment, or payment proposals to clear their indebtedness, to avoid a bankruptcy petition being presented against them.
So how is this going to change?
However, under the new proposals from the Insolvency Service, following a consultation that began in August 2014, a creditor would only be able to present a bankruptcy petition if there is a debt of at least £5,000.
This significant increase in the threshold has angered many creditors who are concerned that this will deprive them of the option to pursue a debtor in this way, now being confined to pursuing a debtor through the County Court or reaching an informal arrangement.
How this affects debtors
For debtors and organisations advising individuals struggling with debt, the announcement has been a welcome relief after many years of calling for a change, to avoid situations of individuals being declared bankrupt for a small debt of £750 and above. Many consider an overhaul of the debt threshold for bankruptcy has been long overdue, given that it has not altered since 1986.
Before the proposed changes come into place in October 2015, they will be subject to parliamentary scrutiny, although it is widely considered that the proposals will be approved and the draft Insolvency Act 1986 (Amendment) Order 2015 will take effect.
And what about creditors?
For creditors pursuing debtors for sums under £5,000, the position is not as bleak as may be initially thought. In the last five or so years, I have noticed a significant decrease in the amount of clients wanting to present a bankruptcy petition for a debt under £5,000. A large part of this reluctance has been due to the scale of the fees to present the petition (presently £280 Court fee and £750 Official Receivers deposit), accompanied by the concern that the debtor could be declared bankrupt and then after 12 months, have a fresh start.
Clients are therefore more in favour of pursuing individuals via the County Courts, with a view to obtaining judgment, taking a more long term approach that they would rather the debt be paid over a period of time (by ways such as an attachment of earnings order).
From October 2015, assuming there are no major objections to the proposals, this line of thinking will be more common place!
If you need help or assistance in the Hertfordshire or St Albans area, please contact debt recovery specialist solicitor Gemma Newing on 01727 832830 or email firstname.lastname@example.org