Increased Minimum Debt Threshold for Bankruptcy

In 1986, the UK had a minimum debt threshold of £750 for individual bankruptcy. Thirty years later, on October 1st, 2015, this was increased to £5,000. Though it may seem like a very substantial increase, there are several reasons for this.

Adjusted for inflation?

According to the Bank of England’s inflation calculator, £750 in 1986 was worth a little under £2,000 in 2015’s money. The increased threshold is considerably more than the inflation impact over that period.

This increase was announced in January 2015 by Business Minister at the time, Jo Swinson. At the same time, she announced a new maximum amount of debt that can be covered by a Debt Relief Order (DRO): the amount will increase from £15,000 to £20,000.

Debt Relief Orders

A DRO is a formal plan, similar to bankruptcy, but aimed at people with minimal assets and lower levels of income and debt. DROs are cheaper to arrange for the debtor and help some of the poorest and most vulnerable people in society.

At the time of the announcement, 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.”

It has been estimated that the impact of these changes will be to allow some 3,600 people per year to enter a DRO, which should also result in fewer declarations of individual bankruptcy.

DROs do have set criteria for people to be eligible for them:

• You must owe less than £20,000.
• Have less than £50 to spend after expenses and tax.
• You must have lived or worked in England or Wales within the last three years.
• You can’t have applied for a DRO in the previous six years.
• The total value of your assets must be less than £1,000.

You cannot be involved in any other formal insolvency or bankruptcy procedure, either.

In summary

On October 1st, 2015, the minimum threshold for personal bankruptcy was raised from £750 to £5,000. Along with this increase, the amount covered by Debt Relief Orders (DROs) went up from £15,000 to £20,000. Though there are strict criteria for applicants, it means fewer of England and Wales’ poorest and most vulnerable people will have to declare themselves bankrupt.