Changes to DRO and creditor bankruptcy limits

Changes to DRO and creditor bankruptcy limits

The Insolvency Service has today released an analysis of the responses it received in respect of its consultation/call for evidence relating to:

  • the effect that debt relief orders (DROs) have had since they were first introduced in April 2009, and whether any changes could be made to improve access and how they work
  • whether changes should be made to the level of debt above which someone owed money can ask the court to make a debtor bankrupt, the current level of £750 having been set in 1986.

Having regard to the responses received, Business Minister Jo Swinson has today announced that in order to enable easier access to debt relief for financially vulnerable people:

  • the maximum level of debt that can be covered by DROs will increase from £15,000 to £20,000. Other changes have been announced in respect of DROs
  • the minimum level of debt for for which a creditor can commence bankruptcy proceedings is to increase from £750 to £5,000

It is understood that the following Parliamentary scrutiny, these reforms will come into force on 1 October 2015, with the changes to DROs set out in the draft Insolvency Proceedings (Monetary Limits)(Amendment) Order 2015, and the change to the creditor bankruptcy limit set out in the draft Insolvency Act 1986 (Amendment) Order 2015.

The increase in the creditor bankruptcy limit was suggested by the overwhelming majority of respondents to the consultation, where suggested new limits ranged from £1,500 to £10,000, but with the majority suggesting an amount of either £3,000 (reflecting Scotland) or £5,000. In commenting on the proposed increase to the creditor bankruptcy limit, Giles Frampton, president of R3, has said:

"The rise in the creditor bankruptcy petition threshold is welcome, although £5,000 is far higher than expected. It is right that the petition be increased: £750 was an entirely inappropriate level and the protection it offered debtors had been steadily eroded by inflation over the last three decades.

The rise in the petition threshold will require creditors to look at other options for the pursuit of low value debts. While a bankruptcy petition is not always the most proportionate tool for this, it’s very important that the insolvency regime maintains a balance between protecting the interests of both debtors and creditors. How the new threshold works in practice should be monitored closely."

Today's announcement will be of particular interest to those professionals engaged in personal insolvency work, especially those who act as and for trustees in bankruptcy. The proposed change to the creditor bankruptcy limit would undoubtedly accelerate an already decreasing number of bankruptcy orders being made.

The Insolvency Service's analysis on the responses it received in respect of its consultation can be found here.

The announcement by Jo Swinson can be found here.

Giles Frampton's comments on the proposed increases can be found here.

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About the author:

Stephen qualified as a solicitor in 2005 and joined the Restructuring and Insolvency team at Lexis®PSL in September 2014 from Shoosmiths LLP, where he was a senior associate in the restructuring and insolvency team.

Primarily focused on contentious and advisory corporate and personal insolvency work, Stephen’s experience includes acting for office-holders on a wide range of issues, including appointments, investigations and the recovery and realisation of assets (including antecedent transaction claims), and for creditors in respect of the impact on them of the insolvency of debtors and counterparties.