The Business Minister Jo Swinson has announced a number of important changes to the personal insolvency regime, all of which are likely to take effect from 1 October this year as modifications to the Insolvency Act 1986.

After many years of concern that the petition limit for bankruptcy has not moved from the meagre £750 set in 1986, the new petition threshold will be £5,000. This reform is meant to address criticism that the draconian bankruptcy regime has been used to address relatively modest but unmanageable debts, despite the existence of the alternative individual voluntary arrangement (IVA) regime and, since 2009, the Debt Relief Order (DRO), which is an administrative scheme that does not involve the court. The reform to the bankruptcy petition threshold is made in parallel with changes to the DRO, which see the ability to qualify for this administrative alternative loosened; there is an increase in the debt burden limit from £15,000 to £20,000 and the debtor may now have assets of up to £1,000 and also a car not exceeding £1000 in value. The disposable income threshold of £50 per month remains unchanged.

Although the last quarterly statistics published by The Insolvency Service demonstrated a fall in bankruptcies and IVAs of 18.7% and 1.9% respectively, debt charities have welcomed the news with the hope that the trend will continue and that more insolvent individuals will find relief in DROs than being forced into bankruptcy. There is however a suspicion on the professional side of the street that any savings in the administration required of the Official Receiver in a typical no or low asset bankruptcy will be more than off-set by the rise in administration costs of dealing with a greater number of DROs.

For further information regarding this topic, please contact Simeon Gilchrist or Sophia Mew. Alternatively, please contact us on t: 020 7691 4000 | e: info@edwincoe.com

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