Debt relief orders
The first change is in respect of debt relief orders (DROs). These are a low cost and less onerous alternative to bankruptcy for those individuals with very low assets and income and debts that they are unable to pay. A DRO enables them be relieved of the burden of their debts. Currently, the maximum limit of debt that allows an individual to consider a DRO is £15,000. From October, this will increase to £20,000 and it is estimated that this will make a further 3,600 people per year eligible to enter into a DRO.
The asset limit of individuals in relation to DROs will rise from £300 to £1000, plus a car (which must be worth no more than £1,000). The surplus income limit for individuals will remain £50 per month.
Further details in respect of DROs can be found on the Insolvency Service website however, as the changes don’t come into force until October 2015, this currently refers to the previous limits.
Bankruptcy creditor petition level
The Government has also announced that from October 2015 it is increasing the minimum level of debt that can trigger a creditor to petition to make a person bankrupt from £750 to £5,000.
The limits were last revised in 1986, and so this is a big change particularly given that inflation would only have taken the level to £1,600. These changes mean the number of people being declared bankrupt, with all its life-changing consequences, could fall sharply as creditors look for other ways of reclaiming lower-value debt, such as through the small claims court.
There are a range of insolvency options for individuals who are in financial difficulty. Talk to us about how we can help.