Insolvency practitioners call for rise in bankruptcy debt threshold

August 14, 2014

By Lucy Palmer-Richeson

A government agency has put forward plans to increase the minimum debt owed before creditors can force bankruptcy proceedings.

The Insolvency Service has issued a call for evidence after putting forward research that shows the threshold would be at £1,700 by now if it had increased in line with the annual rate of inflation. However, the current rate is only £750, and it has stayed at that rate for nearly thirty years.

Business minister Jo Swinson said: “There is a strong argument that bankrupting someone for a debt of £750 is no longer fair or reasonable, especially when there are often alternative cheaper ways for those owed money to seek repayment.”

According to the Insolvency Service, a threshold of £2,000 would have removed around 400 bankruptcy petitions last year.

For someone to be made bankrupt, first a bankruptcy order needs to be issued by a court. This can be done as a result of creditors forcing bankruptcy if they are owed over £750, or through an individual declaring bankruptcy if they are unable to repay their debts.

The Insolvency Service is also looking at debt relief orders (DROs) and seeing whether thresholds and limits need to be revised. DROs were introduced five years ago to help people who owed up to £15,000 who were unable to pay off their debts.

Giles Frampton, president of insolvency trade body R3, said of the review: “R3 has called for DROs to be reviewed for some time and we are pleased the Insolvency Service is taking action.

“We are particularly pleased that the creditors’ bankruptcy petition threshold is being looked at. This was last set in 1986 and an upwards revision is long overdue. £750 is far too low an amount of debt for somebody to be made bankrupt. Were the threshold to have risen in line with inflation, it would be worth almost £2,000 now,” he said.

Charities have welcomed the review. Gillian Guy, chief executive of Citizen’s Advice, said: “At its current level many people who sought help from us after taking out a payday loan or logbook loan could be declared bankrupt.”

Enforcing bankruptcy is a power that should only be available as a last resort for creditors.”

The Insolvency Service has plans to produce a report by the end of this year, once it has gathered responses from the call for evidence.

If you are struggling with debt, give one of our trained debt advisors a call on 0800 072 6623 – the call is free and we can advise on a range of debt solutions depending on your circumstances.