Bankruptcy Threshold Raised
With effect from 1 October 2015, the Government is planning to increase the threshold for bankruptcy proceedings from £750 to £5,000. The threshold is the minimum level of debt for which a creditor can commence bankruptcy proceedings against a debtor. This is a jump of over 600% and is the first increase since the threshold was set in 1986.
Consumers and insolvency professionals have campaigned for many years for an increase in the bankruptcy threshold which was felt to be disproportionately low by today’s standards, particularly given the serious consequences of bankruptcy and the fact that the associated professional costs will, on occasion, exceed the original debt. The Government’s stated aim is to reserve bankruptcy for those with sizeable debts.
However, this change is likely to have a detrimental effect on the recoverability of smaller debts. In our experience, a debtor is less likely to ignore a statutory demand (a pre-requisite for bankruptcy proceedings) and will, finances permitting, often pay the debt in full or come to a satisfactory payment arrangement with the creditor in order to avoid bankruptcy. With effect from 1 October 2015, creditors will no longer be able to serve a statutory demand in respect of any debt below £5,000 and, in the absence of agreement with the debtor for repayment, will be left with having to issue a claim in the small claims court. The threat of such action is unlikely to be as effective as a statutory demand and the consequent threat of bankruptcy proceedings.
If you are owed money by a third party and you wish to take advantage of the existing bankruptcy threshold, do not delay in taking action. Note however that a statutory demand will not be suitable in every case, particularly where the debt is disputed on substantial grounds.
Sarah Mower is a Chartered Legal Executive, specialising in Insolvency and Business Recovery.