From October 2015 the level of debt at which a creditor is able to petition for an individual’s bankruptcy is set to rise from the current level of £750 to £5,000.

The £750 minimum debt level was set when the Insolvency Act was introduced in 1986 and so is almost 30 years old. Some might say that the increase is long overdue and that the possibility of being made bankrupt for £750 is disproportionate. Certainly it seemed that things needed refreshing, however, the new level was something of a surprise. The Insolvency Service was understood to be lobbying for £2,000 (which would be closer to an inflationary based increase) and debt counselling charities (although no doubt pleased) have said they did not expect it to be set so high.

The increase is almost certainly the Government’s attempt to protect the recovering economy and to public and industry reaction towards aggressive collection tactics employed by the less scrupulous side of the debt recovery industry. As practitioners, we have seen all too often people being made bankrupt for debts that could have been managed in another way and which would have presented a better outcome for creditors if they had been. We have also seen some made bankrupt almost without them knowing. As ridiculous as that may sound, it happens regularly – the brown envelopes that remain unopened, or are stuffed into the kitchen drawer are common reactions by people facing difficulties or symptomatic of entrepreneurs who often suffer from lack of attention to detail or are simply too busy to deal with the “admin”. We’ve also seen individuals who on the face of it are very solvent but unable to unlock equity or investments being declared bankrupt for relatively small sums.

There is often a better way for creditors seeking to recover money due to them, and whilst we would maintain that Bankruptcy is a method of last resort, if you are owed money by an individual and you are already at that stage, you should consider your options now. Petitions presented before October can be based on the old level of £750, even if the hearing is set for a date after the change is implemented.

After October, if there really is no other option, all is not lost…

  • There are no changes to your ability to obtain judgement and thereafter seek a charging order to secure your debt.
  • A bankruptcy petition can be presented jointly by a group of any number of creditors the debts of whom in aggregate amount to more than £5,000

Bear in mind that making a Bankruptcy Order does not mean you are going to recover your money. Even if the debtor has an asset, base, Bankruptcy can be a costly process and you might not see a return for at least 12-18 months due to restrictions on forced sales of family homes. Consider all other options first, including seeking professional advice on the options available to you.

Danny Allen
Senior Manager

 

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