Bankruptcy and Debt Relief Order Changes

On 1 October 2015 significantchanges will come into effect and will affect enforcement optionsfor Creditors owed less than £5,000.00.

Bankruptcy

As from that date it will nolonger be possible to issue a Bankruptcy Petition where the debtowed is less than £5,000.00. Currently a Bankruptcy Petitioncan be issued for a debt of £750.00. This is the firstincrease in this limit since 1986.

This change will obviouslybenefit Debtors who owe less than £5,000.00 as they cannot be madebankrupt. It is not, however, good news for Creditors as thethreat of Bankruptcy is a very powerful tool if the Debtor is ableto pay but is simply trying to delay makingpayment.

The change will mean, wesuspect, more claims being made through the Small ClaimsCourt which can be a lengthy process and is not always costeffective especially as Court fees usually increase eachyear.

The other alternative will beto attempt to resolve matters out of Court by entering intorepayment plans with Debtors but if the arrangement breaks downthen the Small Claims Court may be the only remedyavailable.

Debt ReliefOrders

Important changes are alsotaking place in relation to Debt Relief Orders ("DRO") which areorders which write off a Debtor's debts after a 12 month period haselapsed. A Debtor's right to seek such an order is limited bythe amount of the debt they owe and by the assets and surplusincome they may have. As with Bankruptcy Petitions the levelof debt a Debtor may owe and still retain the right to seek a DROis increasing, this time from £15,000.00 to £20,000.00. Thelevel of assets a Debtor is entitled to have and still retain theright to seek a DRO is also increasing, this time from £300.00 to£1,000.00. These changes mean a Debtor will now be able toapply for a DRO if they owe up to £20,000.00, have assets worth nomore than £1,000.00, own a vehicle worth no more than £1,000.00 andhave a surplus income of no more than £50.00 per month.

All these changes assistDebtors and add further difficulty to what is already a difficulttask for Creditors to secure payment of debts owed tothem.

This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.