The threat of bankruptcy can be a useful tool for those looking to recover debts.
However, as of 1 October 2015, this tool will no longer be available to those looking to recover debts lower than £5,000. The increase to £5,000 represents a sharp rise from the old threshold of £750.
Why the change?
Many believe these changes were brought in to redress the balance between the interests of creditors and debtors by preventing over aggressive creditors making individuals bankrupt over relatively small debts. This will be welcome news to many. Others will no doubt argue that, whilst the old threshold was too low and out of sync with inflation, the increase goes too far and flips the threshold firmly in favour of debtors instead of being a legitimate balancing of interests. A figure somewhere in the middle would have perhaps been more effective at achieving the intended balance.
What does this mean for you?
It is inevitable this increase will result in fewer creditor petition bankruptcies being made and creditors, most likely individuals and small and medium sized enterprises, will have to consider alternative ways of recovering their debts. With this avenue closed off for many, there is likely to be an increase in the number of small claims being issued at Court although many will be put off from pursuing these debts as small claims due to the limited cost recoverability issues that arise.
The reality for most creditors is that recovering debts will become much more difficult and more attention will need to be given by creditors to their payment procedures to try and minimise their risk going forwards. Those who still find themselves chasing debts below £5,000 should obtain legal advice to discuss and implement the best strategies available.
Newtons is a strong, ambitious and highly regarded firm of regional solicitors with the resources to look after your legal needs whether you are in business or as a private individual. For more information about how we can help you, please contact us.