On 1st October 2015 the minimum level for which a creditor Bankruptcy Petition can be issued at Court increased from £750 to £5,000, and this was reported in the Law Gazette. This is the first increase in the threshold since the Insolvency Act was brought into force in 1986.
The rise represents an increase of almost 700%! Although an increase to the limit had been called for by many in this area; those involved had suggested a level of £3,000 to bring us in line with Scotland. In its evidence the Government stated that 2,002 (or 17%) of the 11,900 creditor bankruptcy petitions presented in 2013/14 were for petition debts of less than £5,000
A bankruptcy petition is usually the end of a long process. Before a bankruptcy petition is issued, normally a creditor will have to serve a statutory demand first. This should only be served if a debt is ‘undisputed’. The safest way of ensuring this would be to issue a claim and if defended to have judgment given at a final hearing. The debtor then has a limited time to either dispute the statutory demand or make payment. If payment is not received, the creditor can then proceed to present a bankruptcy petition if they so wish. However, the cost of doing so will be £750 for the petition deposit and £250 for the court fees. It is therefore not hard to see why only 17% of the petitions were for less than £5,000 given the costs and time involved to get to that stage.
The increase to £5,000 though may not be good news for many creditors, be it individuals, or small/ medium businesses as their ability to recover smaller debts will be hindered. Creditors will now have to look to other methods of legal action and enforcement to recover their debts including:
- An Attachment of earnings order to make deductions from a debtor’s salary
- Execution against goods by a Warrant or Writ of Control, which will allow a County Court Bailiff or High Court Enforcement Officer to attend a debtor’s property to collect the money or sell goods to pay the debt
- Securing the debt by way of a Charging orders against a debtor’s property
However, the increase to the threshold will be welcomed by debtors who have long campaigned that the £750 threshold was inappropriately low, and easily subject to abuse. Especially when the result of bankruptcy upon an individual can be severe; resulting in the loss of control of assets, loss of directorship, effects to your credit rating and stigma. Although the bankruptcy can be discharged after 12 months, details of the bankruptcy will stay on an individual’s credit file for six years.
Although debtors are now provided with greater protection, the ability for creditors, especially small businesses, to recover their debts quickly and efficiently will be damaged. How the new threshold works in practice should therefore be monitored closely.