Changes to the limits for bankruptcy petitions and DROs a good thing?

The minimum level of debt for which a person who is owed money, can force another person into bankruptcy (the bankruptcy level) will be increased from £750 to £5,000 in October 2015.

In addition the Debt Relief Order (DRO) eligibility criteria will be changed to increase the maximum debt level from £15,000 to £20,000 and the asset limit from £300 to £1,000.

DROs are currently open to those with fewer than £300 of assets (not counting those assets which are ‘excluded’), under £15,000 of debts, and less than £50 a month in spare income. The eligibility criteria for DROs and bankruptcy petitions has not changed since 2009 and 1986 respectively!

Potentially thousands of people are caught between eligibility for a DRO and bankruptcy with many who cannot seek a DRO (because they have too many assets or debts) but are also unable to afford to petition for their own bankruptcy, which can cost £705. The increases in the asset/liability levels for DROs should therefore make it much easier for people to proactively deal with their debt by having access to the most appropriate procedure for them.

Conversely the increase in the threshold for creditor petitions will also put a stop to the threat of bankruptcy from being used disproportionately as a debt collection tool for very low value debts. The changes should not disadvantage creditors as eligibility for a DRO will continue to be restricted to those with very low realisable assets and whose estates would not have produced funds for creditors even if bankruptcy proceedings were brought against them by a creditor.

Accordingly the changes should see certain creditor groups using the threat of a bankruptcy petition in a much more targeted manner, seeking alternative debt recovery tools such as County Court Judgements, charging orders and attachment of earnings orders.

The changes outlined above are likely to add to the already declining bankruptcy figures.

According to the recently published report by the Insolvency Service a total of 99,196 individual insolvencies were registered in England and Wales, a decrease for the fourth successive year since 2005. Of this figure 20,318 were bankruptcies and 26,688 debt relief orders. Conversely 2014 has seen a second successive annual rise in the number of individual voluntary arrangements with 52,190 IVA’s representing a 6.8% increase on 2013, the highest level since they were introduced in 1987.