Changes to bankruptcy rules from October are welcome.
Last week the saw the announcement of some much needed changes to the insolvency system in this country.
These changes come into effect in October this year. Let's take a look at what's changing, and why these developments are good news for people in debt.
Bankruptcy
The first of these changes was the raising of the minimum level of debt for which a creditor could force a person into bankruptcy. It is increasing from £750 to £5,000. This is a figure that has not changed since 1986, so a raise in the threshold was long overdue.
Why is this change important? At the current level of £750, creditors could force people into bankruptcy for relatively small debts. Making someone bankrupt, with all its associated impacts on a person’s life, for a debt as small as £750 is simply disproportionate.
The impact of bankruptcy on people’s lives can be enormous. It can affect people’s ability to work in certain jobs, it may result in the sale of a person’s home and it will hurt their people’s ability to borrow money as bankruptcy appears on a person’s credit file for six years.
[SPOTLIGHT]We’ve seen creditors hold the threat of bankruptcy over people and use it as a tool of harassment. By threatening a person with bankruptcy it can encourage them to prioritise that debt over another, which can lead to missed payments on other debts and deeper financial troubles.
By raising this figure to £5,000 it will ensure that people can no longer be made bankrupt or threatened with bankruptcy for relatively small debts.
It’s important to remember that for many people bankruptcy will be the best way to deal with their debt problems.
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Debt Relief Orders
The second change announced was the increase in the threshold for a Debt Relief Order (DRO) and an increase in the asset limit.
A DRO, which is sometimes referred to as bankruptcy-lite, is a form of insolvency that allows people to get debt relief, but is specifically designed for those on low incomes who don’t have significant assets.
Under the current rules you can’t get a DRO if your debts are larger than £15,000. But from October, that threshold will be increased to £20,000.
This is good news for certain people struggling with debts who have no realistic chance of recovering their financial position, but can’t afford the cost of going bankrupt.
According to the Insolvency Service this change will mean that another 3,600 people will be able to get access to a DRO.
Currently people applying for a DRO cannot have assets of over £300, but this will increase to £1,000 from October.
DROs are a vital form of debt relief, so ensuring that more people have access to them and the opportunity to get back on their feet is a welcome step forward. The benefits of getting this kind of help can be huge; a survey by Christians Against Poverty showed that 96% of people who got a DRO would not have been able to deal with their debt without it, while 79% said that the process had a positive impact on their mental health.
Anyone considering insolvency options such as bankruptcy or a DRO should get specialist advice from an organisation like StepChange Debt Charity. While it can be one of the quickest way to get debt relief and to regain your financial footing, there are serious consequences to consider.
You can get help by using Debt Remedy, our online advice tool, or calling us to speak to a debt advisor.
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