Business minister, Jo Swinton has announced that there will be changes to the rules of debt relief. It is believed that the changes are due to take effect from October 2015.
The changes are intended to help financially vulnerable people access more appropriate debt relief when Bankruptcy was previously their only option.
Debt Relief orders are a cheaper alternative to Bankruptcy but have previously only been available to those with debts under £15,000. The new changes will see the maximum amount of debt that can be recovered under a Debt Relief Order increase from £15,000 to £20,000 making it making it a more accessible option.
Debts that can be included in a Debt Relief Order include but are not limited to: rent, loans, credit cards, and items bought on finance.
The changes in Bankruptcy will see the creditor petition threshold increase from £750 to £5,000 meaning that creditors will not be able to use Bankruptcy as a method of enforcement for debts under £5,000.
So how will this affect you as a creditor?
With Debt Relief Orders being made more accessible it is likely to see a rise in their use particularly with the cost of bankruptcy being higher. It is not uncommon to hear a debtor stating “I am saving up to go Bankrupt” with the fees being circa £700 for an individual to apply for their own Bankruptcy.
If your debtor enters a Debt Relief Order, as a creditor you are unable to take any action to recover the debt whilst they are in the moratorium period of 12 months. After the 12 month period, if your debtors financial situation has not improved all debts within the Debt Relief Order are written off.
With the threshold of debt increasing to £5,000 before a creditor is able to petition for bankruptcy it will limit the options for enforcement of debts under £5,000.
If you have any questions about these changes, please do comment below and I would be pleased to help if I can. Alternatively you can contact me or any member of my team on 01908 660 966 (Milton Keynes) or 01604 828 282 (Northampton).