Alterations to the rules surrounding bankruptcy and Debt Relief Orders could change the way low-value debt recovery takes place on behalf of creditors, according to R3.
The Association of Business Recovery Professionals’ president Giles Frampton explains that the proposed changes include raising the minimum threshold for creditor bankruptcy petitions from £750 to £5,000.
Doing so corrects the anomaly caused by the threshold not rising with inflation during the past 30 years, which has led to it being a relatively low amount to force somebody into bankruptcy over.
However, threatening bankruptcy proceedings has been a successful strategy in the pursuit of small debts over £750 in recent years; that may soon be an impossibility.
Mr Frampton said: “The rise in the petition threshold will require creditors to look at other options for the pursuit of low-value debts.
“While a bankruptcy petition is not always the most proportionate tool for this, it’s very important that the insolvency regime maintains a balance between protecting the interests of both debtors and creditors.
“How the new threshold works in practice should be monitored closely.”
He added that the proposed £5,000 threshold is “far higher than expected” (perhaps the government hope to future-proof the legislation by pre-empting future inflation?).
The change to the creditor bankruptcy petition threshold from £750 to £5,000 is one of several alterations to the existing rules currently being proposed.
Debt Relief Orders would also increase, from £15,000 to £20,000, while asset limits would rise from £300 to £1,000, again a relatively large proportional increase in the limit.