The Government has announced an increase in the minimum amount for which an individual can be made bankrupt on a creditors petition from £750 to £5,000. The previous threshold of £750 had been in place for a very long time and Government Minister, Jo Swinson, commented that this most serious form of personal insolvency should be “reserved for those with sizeable debts”.
The increased threshold is due to come into operation in October this year.
Whilst the Government has been under pressure to review the minimum bankruptcy threshold for some time now, many insolvency experts were recommending a threshold of just £2,000.
The change is unlikely to cause a significant decrease in bankruptcies as creditors’ bankruptcy petitions are a lot smaller in number than debtors’ bankruptcy petitions.
There have been mixed reactions to the move with some commentators pointing out that increasing the threshold prevents creditors from making people bankrupt for very small amounts of debt whilst others remark that the change makes it more difficult to chase and recover monies due from landlords and tradespersons who refuse to honour their debts.
Criticism of the threshold increase is strong in the debt collecting community who hitherto have used the threat of bankruptcy as a debt collecting tool. It is possible that threatening debtors with bankruptcy by way of a Statutory Demand was seen by the Government as an abuse of process in some instances and the threshold increase helps put a stop to this practice. Changes now mean that debt collectors chasing debts below the new threshold will now have to look to other collection methods to recover monies outstanding.