The number of people being declared bankrupt in the UK has soared in recent years. The debt crisis has seen people get into unmanageable arrears on an unprecedented scale. Such is the number of people in debt, and at shockingly high levels, the current £750 threshold that signifies the point at which creditors can force bankruptcy proceedings against individuals in England and Wales seems disproportionately low and woefully out of touch with the reality of the debt situation in this country.
Now it appears the UK government is taking steps to address this issue by exploring the possibility of raising the minimum debt threshold. Business minister Jo Swinson says claims that the current figure no longer represents a fair and reasonable point at which to enforce bankruptcy are entirely valid. The £750 threshold was implemented nearly 30 years ago so, much like with the accusations about council tax valuation, there are widespread claims that it has not evolved and is no longer fit for purpose. According to research by the Insolvency Service, if the bankruptcy threshold had risen annually in line with inflation it would now stand at £1,700. They claim that a threshold set at nearer £2,000 would have removed 400 cases from the bankruptcy process last year, a figure which equates to 3% of all cases brought in 2013/14.
‘Bankruptcy has serious consequences and there is a strong argument that bankrupting someone for a debt of £750 is no longer fair or reasonable, especially when there are often alternative cheaper ways for those owed money to seek repayment,’ said Swinson.
In a move that will be welcomed by those seeking professional help with their debt problems, the Insolvency Service is also gathering advice on whether debt relief orders (DROs)could be improved as part of its call for evidence.
DROs came into force on 6 April 2009 and apply in England and Wales only. Unlike bankruptcy which is a court-based procedure, a DRO is an administrative-type of debt resolution and only protects those debts included in the DRO from action against creditors. Any remaining debt included in the DRO is written-off after the DRO expires, which is usually after 12 months. The procedure was introduced to provide debt relief to individuals without access to existing procedures because of their low income and asset levels. People who fall into this category are prevented from entering bankruptcy or repaying those debts. The stringent qualification criteria currently in place is designed to protect the rights of creditors to collect against debts owed by people that have the means to pay.
The Insolvency Service is trying to ascertain whether access for vulnerable debtors to DROs can be improved as part of its review process. Specifically, it is seeking clarification about how far DROs are providing individuals with a long-term solution to problem debt. It is also assessing how the various monetary limits which restrict access to the system, plus its overall design and integrity, are working in practice.
If you are struggling with debt and need professional help, contact Council Tax Advisors for free, independent advice. Our team of friendly and knowledgeable experts will be happy to discuss your options and can help you implement a course of action that is most appropriate for your situation.