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Insolvency Proceedings

Volume 590: debated on Thursday 15 January 2015

In August 2014 I announced a call for evidence in order to review the way in which debt relief orders have performed since they were introduced in 2009, including looking at the eligibility limits for applying for a debt relief order. This call for evidence also asked for views on the creditor petition limit for bankruptcy, which was set at £750 in 1986. We asked whether this figure should be increased and, if so, to what level. We also undertook a survey of debtors who had applied for debt relief orders.

The responses to both the call for evidence and the survey of users showed that debt relief orders are thought to be working well and have provided an important additional route for debt relief for vulnerable people, with benefits for mental health and family relationships as well as allowing a fresh financial start.

Following the call for evidence, it was apparent that it was widely believed that some of the limits on debt relief orders needed to be increased. Bankruptcy is considerably more expensive than applying for a debt relief order and I was made aware that there may be people who are unable to apply for bankruptcy but have very low assets and income and creditors would therefore not be likely to receive any payment.

The Government have therefore decided to increase the debt relief order eligibility criteria, the maximum debt level increasing from £15,000 to £20,000 and asset limit from £300 to £1,000. This will allow more people to access debt relief. No change will be made to the maximum level of surplus income allowed.

With regards to the creditor petition limit for bankruptcy, there was also a strong body of views that this should be considerably increased. Bankruptcy is the strongest of insolvency tools and I believe that someone should only be put into bankruptcy by a creditor for a significant level of debt, especially taking into account that various other debt collection methods, such as county court judgements, are available. Having taken account of all the responses, the Government have decided that the creditor petition level should be raised from £750 to £5,000.

I am today laying statutory instruments to give effect to these changes from 1 October 2015.

We also received a number of helpful suggestions relating to the how the debt relief order process works. We will ensure that those at risk of violence are sufficiently protected when applying for a debt relief order. We will also undertake some monitoring to ensure consistency on process between competent authorities who assist debtors in their applications. We will provide more options of how payments can be made when applying for a debt relief order. We are also contributing to work to ensure common guidance across all financial organisations with regards to how surplus income is calculated for different debt relief purposes, ensuring fairness and transparency.

It is important to me to ensure that those who require debt relief have access to it, while taking account of creditors’ interests, and that creditors’ powers to collect debts are set appropriately. These policy changes will ensure that this is the case and this will continue to be monitored and a review will be carried out after two years of operation.

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