It has recently been announced by the Government that changes are due to come into effect to reduce the number of individuals entering Bankruptcy

The changes will allow approximately 3,600 more people a year with problem debt to enter into a Debt Relief Order (DRO) – a low cost alternative to bankruptcy for those with very low assets and income and debt which they are unable to pay. The maximum amount of debt that can be covered by these plans will increase from £15,000 to £20,000.

The government is also increasing the minimum level of debt for which someone owed money can force a person into bankruptcy from £750 to £5,000. The limits were last revised in 1986.

Evidence showed that DROs help some of the poorest and most vulnerable people in society make a new start and improve their mental well being. The new changes will allow more people to get resolution when faced with debts they cannot pay. 

The changes will not disadvantage those owed money because eligibility for a DRO will continue to be restricted to those with very low realisable assets and therefore no realistic ability to repay their debts.

The debt that can trigger bankruptcy through the courts were disproportionate, as people can be put through the most serious of debt recovery action for a debt as small as £750. There are also other ways for those owed money to recover their debts such as action in the small claims court or attachment to salaries.

In short, the changes that are due to come into effect in October 2015 include:

• Bankruptcy creditor petition level to be increased to £5,000 from £750
• DRO limits raised to £20,000 enabling some 3,600 more people with low level debt to use DROs instead of the more expensive and onerous bankruptcy process
• DRO asset limits raised to £1,000, plus a vehicle (worth not more than £1,000)
• The maximum surplus income a person can have to qualify for a DRO will remain at £50 per month.

It will be interesting to learn whether the move to reduce the number of bankruptcies is political or a genuine attempt to help those most in need of a fresh start.

Should you wish to discuss the proposed changes or to discuss DRO’s and bankruptcies, please contact us on 020 7186 1144.

Author
Gareth Price 
Tel: +44 (0) 20 7186 1173
Email: gprice@moorfieldscr.com

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Moorfields is one of the UK's leading independent firms of restructuring and insolvency specialists. Our highly skilled teams include restructuring professionals and licensed insolvency practitioners who provide leadership, experience and high quality advice to companies and their stakeholders in financially distressed situations

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