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Creditor bankruptcy petition threshold increased sevenfold to £5,000

On 1 October 2015 the threshold for bankruptcy proceedings was increased from £750 to £5.000. The threshold represents the minimum amount of debt for which a creditor can initiate a petition for bankruptcy against a debtor who is an individual (the £750 threshold remains where the debtor is incorporated and a winding-up order is sought). This is the first time that the level has been increased since 1986.

Jo Swinson, Business Minister at the time when the intended changes were published indicated that parliament wished to preserve bankruptcy “for those with sizeable debts”. Opinion is split between campaigners who welcome the increase stating that it will prevent creditors making people bankrupt for small amounts and others expressing concern that it will make it difficult for creditors to recover small amounts under the threshold leaving them no option but to claim under the vagaries of the small claims procedure. The threat of bankruptcy is no longer a bargaining tool for smaller amounts when trying to negotiate repayment/settlement. Practitioners and consumer groups on the whole seem to welcome the increase but have expressed surprise at the level set. The insolvency trade body R3 and the City of London Solicitors Society had recommended the threshold be increased to £3,000.

Similarly the limit of debt owed for a Debt Relief Order (DRO) has increased from £15,000 to £20,000.

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