trigroupadmin No Comments

The Government has announced that it intends to increase the minimum level of debt for which an individual can be made bankrupt from £750 to £5,000.

This figure was last revised in 1986, so it’s well overdue for review. That said the increase is much greater than most people expected. £750 in 1986 would equate to roughly £1,700 today, and so and increase to around £2,000 was what was expected.

Many people would accept that it is inappropriate and disproportionate for an individual to be at risk of losing their home, business and sometimes their job over a debt of just £750. But the insolvency procedure is supposed to strike a fair balance between the interests of debtors and creditors, and some may question whether such a large leap in the threshold maintains that balance.

Strictly speaking, issuing a statutory demand and using bankruptcy as a device to put pressure on debtors for payment is an abuse of process. It does, however, often provoke a dialogue between debtor and creditor.

A creditor will really have just one way to collect a debt of less than £5,000 in future, even when it is not seriously disputed – obtaining judgement through the small claims court. That’s often protracted and equally often ineffective. Often an examination of the debtor will be necessary to obtain information to decide on a viable enforcement route, whether that be a charging order, third party debt order, attachment of earnings order or by sending in the bailiffs. Only token costs are recoverable.

With continuing cuts in Court Service funding there’s not likely to be any improvement in efficiency and effectiveness in the foreseeable future. And if, as predicted, there are also substantial hikes in Court fees in the offing, that route will become even less attractive.

Will it make credit more difficult to come by? Will it result in an increase in insolvencies amongst creditors who are unable to collect their debts? The change certainly means that creditors will need to review their options for pursuing debts. Knowing your customer, and keeping on top of credit control, will be more important than ever.

The increase comes into effect on 1 October 2015 (subject to Parliamentary scrutiny), so we may see a short term surge in bankruptcy numbers before they reduce in the longer term – about 20% of creditor-led bankruptcies in 2013/14 were for debts of less than £5,000.