The government has announced a significant increase in the threshold for creditors petitioning debtors for bankruptcy.
BIS insolvency minister Jo Swinson said the creditor petition limit for bankruptcy will rise from £750 to £5,000 from this October.
The announcement was one of several changes to insolvency proceedings announced by the government in a written parliament statement today.
Solicitor groups and insolvency practitioners had both called for an increase in the limit, which has not been changed since 1986.
Swinson said there was a strong body of views that it should be considerably increased.
‘I believe that someone should only be put into bankruptcy by a creditor for a significant level of debt, especially taking into account that various other debt collection methods, such as county court judgments, are available.’
Both the insolvency trade body R3 and the City of London Solicitors Society had suggested the threshold should rise to £3,000.
CLLS said this would bring England and Wales into line with limit applicable in Scotland, citing the problem that bankruptcy is ‘largely ineffective’ as a tool for returning money to creditors in low-value cases.
In its consultation response, R3 said bankruptcy may be an appropriate way for some to deal with their debts, but it is not an option suitable for everyone.
The response added: ‘Placing someone in bankruptcy over a low value debt could be a disproportionate response. Raising the creditor petition threshold would restore some strength to what is currently a weak safeguard.’
As well as making it more difficult to bring bankruptcy proceedings, BIS will also increase the maximum debt level at which people can apply for a debt relief order, from £15,000 to £20,000. Swinson said the intention of this is to allow more people to access debt relief without turning to bankruptcy.