August 8, 2014 7:07 pm

Rise in bankruptcy debt threshold recommended

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The minimum debt threshold that can trigger bankruptcy proceedings should be raised to help more people extricate themselves from debt problems, insolvency practitioners said, after the government launched a consultation on reform.

The Insolvency Service, a government agency, is also calling for views on whether the terms of debt relief orders, a low-cost measure introduced five years ago, are too restrictive.

Debtors can be declared bankrupt if they owe just £750, a threshold that was set in 1986. If the limit had increased in line with inflation over the intervening period, it would be set at £1,700 today.

Jo Swinson, business minister, 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.”

Bankruptcy is regarded as the most drastic option for dealing with debt problems. Gillian Guy, chief executive of Citizens Advice, said: “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.”

The Insolvency Service said a threshold of £2,000 would have taken 400 cases out of the bankruptcy process in 2013/14, or 3 per cent.

Giles Frampton, president of R3, which represents insolvency practitioners, said: “Too many people are currently unable to access an insolvency option that is right for their circumstances.”

R3 believes the so-called “creditor bankruptcy petition threshold” should be raised to £3,000 to cover the legal costs of bankruptcy proceedings as well as provide leeway for future inflation.

Debt relief orders, an alternative to bankruptcy, are currently only available to those who owe less than £15,000, and have assets of no more than £300. R3 said those limits should be raised to £2,000 of assets and £30,000 of debts to allow more people to use the less costly debt management plans.

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