In January 2015, the Government published legislation which proposes to increase the level of debt necessary for a creditor to present a bankruptcy petition to £5,000 from 1 October 2015 (Draft Insolvency Act 1986 (Amendment) Order 2015). This represents a significant increase on the current law which allows a petition to be presented on a debt of just £750. It has apparently been proposed to dissuade creditors from using this arguably aggressive mechanism to collect relatively low level debts.
Debt Relief Orders
The Insolvency Proceedings (Monetary Limits) (Amendment) Order 2015 (the Order), also due to come into force from 1 October 2015, broadens the eligibility for a debtor to obtain a Debt Relief Order (DRO).
In brief, DROs provide protection to debtors with limited assets and low incomes from their creditors taking steps to enforce debts for a period of one year. At the end of that year, the debtor is discharged from liability for those debts. DROs do not result in the realisation of assets/distribution of assets to a debtor's creditors.
The current thresholds required for a DRO are that the debtor has assets of £300 or less, a maximum monthly surplus income of £50, and owes less than £15,000. The Order increases the asset threshold to £1,000 and the debt to £20,000.
The Insolvency Service, which is responsible for the proposed changes, states that the new limits for DROs reflect the higher costs of living and resultant higher levels of debt in which people now find themselves. While the Order has already been formally enacted, the proposal to increase the debt level for presenting a bankruptcy petition will now be subject to parliamentary scrutiny.