At the same time the maximum amount of debt that can be covered by Debt Relief Orders – the low-cost alternative to bankruptcy – will increase from £15,000 to £20,000.
Jo Swinson said: “Struggling with unresolvable debt can cause immense stress for families. These changes will ensure that our debt relief schemes are updated so that they still meet their original goal of providing access to those who need them. They also ensure that bankruptcy, which has the most significant consequences, is reserved for those with sizeable debts.”
The move marks the culmination of a long campaign by debt charities and insolvency firms and follows a call for evidence launched by the Minister last August.
“Bankruptcy is considerably more expensive that 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,” she said.
Matt Barlow CEO of debt charity Christians Against Poverty said: “Currently, more than a third of our clients, many of whom are vulnerable, are too poor to go bankrupt. They have too much debt to access a debt relief order and they have too little money to afford bankruptcy fees. They are stuck – literally too poor to go bankrupt, which struck us as a real injustice.
“We had campaigned for the limit to rise to £30,000 which would have seen more than half of our clients able to afford this debt solution. However, the line had to be drawn somewhere and £20,000 is a good start.”
Official figures show that there have been 140,861 Debt Relief Orders since they were introduced in 2009.
Gillian Guy, chief executive of Citizens Advice said: “Today’s changes will help people who are in serious, unmanageable debt to find a way out. Raising the bankruptcy debt threshold and the debt relief order limit will increase options for people who would previously have had no choice but to declare themselves bankrupt.”
Joanna Elson, chief executive of the Money Advice Trust, the charity that runs National Debtline said: “We hope that this will come to be seen as a good first step towards the wider review of debt solutions that we have been calling for. We have to ensure that a viable debt solution is made available to every single person struggling to repay what they owe, and that no-one is allowed to fall through the cracks of a system that has evolved organically over several decades.”
Giles Frampton, president of R3, the insolvency trade body, said: “Insolvency solutions can often be a suitable way for heavily indebted individuals to deal with their debts but it is important that people are in the type of debt solution most appropriate for their situation. The changes will make it much easier for indebted individuals to deal with their debts effectively.
“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.”
Simon Read
