Government Aids Debtors by Raising Forced Bankruptcy Threshold

Those who are in debt and are having trouble coping financially received some relief from the government this month. It has been announced that the level of debt required before a debtor could potentially be forced into bankruptcy is going to be raised significantly. Where previously this threshold was £750, it is now set to be raised all the way to £5,000.

The current £750 limit has been in place since 1986, and over the course of that time its value in real terms has been eroded significantly by nearly 30 years of inflation. According to the Bank of England’s inflation calculator, when it was first introduced it was equivalent to nearly £2,000 in 2013 (the latest year covered by the calculator), which means time has cut the true value of this limit to well under half of what it represented originally.

The president of insolvency trade body R3, Giles Hampton, said that “The rise in the creditor bankruptcy petition threshold is welcome, although £5,000 is far higher than expected.”

Hampton went on to call the previous limit “an entirely inappropriate level” and added that “the protection it offered debtors had been steadily eroded by inflation over the decades.”

According to business minister Jo Swinson, it will be replaced by the new, much higher limit in October of this year. The new £5,000 figure is not only a big increase on the previous figure, but also significantly higher in real terms than the current limit was even at the time of its introduction.

The increase of this threshold will be accompanied by another measure designed to help those in debt, as the maximum amount of debt that a debt relief order can cover will also be increased. Debt relief orders are often considered a more affordable alternative to going bankrupt, and were first introduced in 2009. Since that time, there have been well over 140,000 debt relief orders throughout the UK. They can currently cover debts of up to £15,000. From October, they can include up to £20,000 worth of debt.

Christians Against Poverty chief executive Matt Barlow welcomed this move, saying that over a third of the charity’s customers currently cannot afford bankruptcy fees but have too much debt to utilise debt relief orders. The raised threshold will open them up to more people who are currently struggling.

Barlow pointed out that “We had campaigned for the limit to rise to £30,000, which would have seen more than half of our clients being able to afford this debt solution.” Nonetheless, he recognised that “£20,000 is a good start.”