Improved help for the financially vulnerable targeted
Plans to increase the minimum debt which can trigger bankruptcy proceedings and improve the low cost debt relief system are being considered by the government.
The Insolvency Service has issued a call for evidence on increasing the bankruptcy debt threshold which was set at £750 almost three decades ago. It is also seeking views on how debt relief orders (DROs), introduced five years ago for those trapped with debts of less than £15,000 and no means of paying it off, could be improved.
Business Minister Jo Swinson said:
Bankruptcy has serious consequences and 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.
I’m also keen to ensure that debt relief orders continue to meet the objective of helping the most financially vulnerable with a low-cost way out of problem debt.
If the bankruptcy threshold had risen annually in line with inflation it would now be £1,700. A threshold set at £2,000 would have removed 400 petitions last year (or 3% of all cases in 2013/14), while a £3,000 threshold would have taken 1,000 cases (8%) out of the bankruptcy process.
The call for evidence considers:
- whether the minimum level of unpaid debt owed before a bankruptcy petition can be presented to court (£750 ) is set too low
- whether access for vulnerable debtors to DROs can be improved, including the various monetary limits which restrict access
- the design and integrity of the system including whether the competent authority system of delivery for the DRO solution is working well
- whether DROs are helping individuals to break away from the cycle of problem debt in the long-term.
Gillian Guy, Chief Executive of Citizens Advice, said:
People who hit financial rock bottom need to have a way out. A review of debt relief orders has been long-awaited and could help people whose spiralling debt has left them with few options.
It is staggering that the bankruptcy debt threshold has not been raised for 28 years. At its current level many people who sought help from us after taking out a payday loan or logbook loan could be declared bankrupt. People with debts under £1,000 can be forced to accept credit black marks, or even lose their home. Enforcing bankruptcy is a power that should only be available as a last resort for creditors.
Mike O’Connor, Chief Executive of StepChange said:
StepChange Debt Charity welcomes the review of the debt level for creditors’ petitions. This has not changed for nearly 30 years, leaving people open to a drastic enforcement procedure for what are now small debts.
We also welcome the review of DROs which help people deal with problem debt. It is timely to evaluate how they are working, how they can help more people at lower cost to individuals and to the debt advice charities who help people set them up.
Giles Frampton, President of the insolvency practitioner trade association R3, said:
This review is very welcome. R3 has called for DROs to be reviewed for some time and we are pleased the Insolvency Service is taking action. Although DROs are only a relatively new part of our personal insolvency landscape, personal debt issues move on so quickly that it is already time to look at them again.
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.
Notes to Editors
The Call for Evidence can be found at: https://www.gov.uk/government/consultations/insolvency-proceedings-review-of-debt-relief-orders-and-the-bankruptcy-petition-limit
The bankruptcy petition threshold was last set in 1986.
Debt relief orders (DROs) came into force on 6 April 2009 and apply in England and Wales only.
The aim of DROs was to provide debt relief to those excluded from existing procedures – those with low levels of debt with no ability to pay off those debts due to low income and asset levels and without the means to enter bankruptcy. It was also designed to support the financial rehabilitation of debtors as its low cost provided debtors with an incentive to address their debt issues earlier. By having strict entry conditions DROs aimed to maintain the right of creditors to collect against their debts where debtors were able to pay.
In contrast to bankruptcy - DROs are an administrative rather than a court based procedure and only debts included (scheduled) in the DRO are subject to the protection from creditors during the course of the DRO and the debts are discharged after the DRO ends which is normally after 12 months.
The Insolvency Service administers the insolvency regime, investigating all compulsory liquidations and individual insolvencies (bankruptcies) through the Official Receiver to establish why they became insolvent. It may also use powers under the Companies Act 1985 to conduct confidential fact-finding investigations into the activities of live limited companies in the UK. In addition, the agency authorises and regulates the insolvency profession, deals with disqualification of directors in corporate failures, assesses and pays statutory entitlement to redundancy payments when an employer cannot or will not pay employees, provides banking and investment services for bankruptcy and liquidation estate funds and advises ministers and other government departments on insolvency law and practice.
Further information about the work of the Insolvency Service, and how to complain about financial misconduct, is available from: https://www.gov.uk/government/organisations/insolvency-service
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