Bankruptcy changes: Five things you need to know about the insolvency regime

It could mean that there are around 2,000 fewer bankruptcies every year

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The Independent Online

What now – are they making it easier to go bust?

The insolvency regime is changing from 1 October to help more people who are in financial difficulties. That's the official line.

What are the key changes?

The main one, which will protect more people from being forced into this position, is that the minimum debt needed before a creditor can ask a court to make an individual bankrupt is climbing from £750 to £5,000. It could mean that there are around 2,000 fewer bankruptcies every year.

What else is changing?

Debt-relief orders – which are a low-cost alternative to bankruptcy – will become more accessible. To enter an order at present, an individual must owe less than £15,000 and have under £300 of assets. From next month, an individual must owe less than £20,000 and have under £1,000 of assets. The cost saving is significant: bankruptcy costs £705 in government administration and court fees to enter debt-relief orders only cost £90. The new rules will allow more people to go for the cheaper option.

Why are the changes being made?

It's very important that people can enter a debt-relief arrangement that is appropriate to their needs. The changes make it more likely that those who owe money will be able to find the right solution. This is better both for debtors and creditors.

Are the changes being welcomed?

Andrew Tate of R3, the insolvency trade association, said: "The reforms will help achieve a better balance between creditors and insolvent individuals." The changes make it much more likely, he added, that someone struggling with their finances will be able to find a better solution.

"The increase in the value of debt for which someone can be made bankrupt is welcome, although it will now be at a level much higher than many people expected," Mr Tate said. But the new level needs monitoring, he cautioned, to ensure it doesn't prove unfair to creditors.

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