Why the Bankruptcy Threshold Increase?
For those looking for legal debt recovery, the threat of bankruptcy can be a useful and powerful tool. However, since 1 October 2015, the bankruptcy threshold increased for individuals to £5,000. This represented a sharp rise from the old threshold of £750 for the first time in three decades.
The dramatic increase in bankruptcy threshold came as welcome news to many. Many believe these changes were brought in to redress the balance between the interests of creditors and debtors. The bankruptcy threshold increase has prevented over aggressive creditors making individuals bankrupt over relatively small debts of above £750.
Others have argued that, whilst the old threshold was too low and out of sync with inflation, the increase went too far and flipped 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 Legal Debt Recovery?
If you are owed more than £5,000 from an individual, you can go through the legal debt recovery process by applying to bankrupt them. Within this situation, a bankruptcy petition must be shown within Court, which a solicitor can assist you with. Since the bankruptcy threshold increase, fewer creditor petitions have been made, with nearly 2000 creditor petitions in Quarter 3 of 2015 to virtually no petitions in Quarter 3 of 2020.
Additionally, creditors have had to consider alternative ways of recovering their debts, who are most likely individuals and small and medium-sized enterprises. Hence, there has been an increase in the number of small claims being issued at Court. However, many have been put off from pursuing these debts as small claims due to the limited cost recoverability issues that arise.
If you know that the individual who owes you money is being taken to Court for bankruptcy by another case, you can register as a creditor. This ensures that if they are declared bankrupt, then you are listed as an individual that they owe; however, financial compensation is not certain.
The reality for most creditors is that recovering debts has 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 forward. Those who still find themselves chasing debts below £5,000 should obtain legal advice to discuss and implement the best strategies available.
For legal debt recovery advice for individuals and businesses, please don’t hesitate to contact us. Newtons is a strong, ambitious and highly regarded firm of regional solicitors with the resources to look after your legal needs. Our debt recovery team are here to assist you, tailoring each bankruptcy solution to your scenario, whether you are in business or as a private individual.