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Changes to Bankruptcy and Debt Relief Order Limits

By F A Simms

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The Insolvency Service has proposed increases to the bankruptcy petition threshold and to the Debt Relief Order (DRO) debt. The Bankruptcy threshold will increase from £750 to £5,000 and the DRO debt will increase from £15,000 to £20,000; these reforms are looking to be enforced in October 2015 after Parliamentary scrutiny.

 The Insolvency Service gathered views from a number of parties including numerous debt charities, and research showed that DRO helped some of the most vulnerable people make a new start, while the debt that triggered the majority of Bankruptcy petitions was disproportionate to the fees.

 The rise in the creditor Bankruptcy petition fee was higher than expected but is a welcome change. Creditors will now have to look at alternative options in order to pursuit a low value of debt. Giles Frampton, President of insolvency trade body R3 said: “The rise in creditor bankruptcy petition threshold is welcome, although £5,000 is far higher than expected. It is right that the petition be increased: £750 was an entirely inappropriate level and the protection it offered debtors had been steadily eroded by inflation over the last three decades.”

 With the increase in the maximum amount of debt that will be covered in a DRO, it is hoped that approximately 3,600 more people a year will be able to avoid Bankruptcy by entering into one of these plans.

 Business Minister Jo Swinson said: “Struggling with unresolved debt can cause immense stress for families. These changes will ensure that our debt relief schemes are updated so that they still meet their original goal of providing access to those who need them. They also ensure that Bankruptcy, which has the most significant consequences, is reserved for those with sizeable debts.”

 It will be interesting to see the difference in the figures for these two processes once the new reforms are in place and to see if the changes that have been made make a difference to individuals suffering with debt across the country.

Published January 2015