Simon Read: A couple of decades late, the bankruptcy threat recedes


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I'm pleased to report some good news this week for debtors. It's going to become much harder to push people into bankruptcy.

The current minimum amount debt for which you can be forced into bankruptcy is £750. If that sounds fairly low, that's because it was set in 1986 when £750 was quite a sizeable debt. That it's been kept at the same level for almost three decades is ridiculous, as it makes it far too easy for creditors to move against debtors.

So the good news is that the minimum level will rise in October to £5,000. It's a crucial change that has long been overdue. I agree with Giles Frampton, president of R3, the insolvency trade body, who said that £750 "was an entirely inappropriate level and the protection it offered debtors had been steadily eroded by inflation over the last three decades".

At the same time, the maximum amount of debt that can be covered by debt relief orders – the low-cost alternative to bankruptcy – will increase from £15,000 to £20,000 in October. This is another sensible move as it will open the option up to many more people whose debt has spiralled a bit more out of control.

Debt relief orders were launched in 2009 and have since helped 140,861 people sort out their borrowing problems. If you are unaware of them, that's probably because you've avoided falling into severe debt difficulties. But they have made a positive difference to those who have.

Matt Barlow chief executive of the debt charity Christians Against Poverty, said: "We had campaigned for the limit to rise to £30,000, which would have seen more than half our clients able to afford this debt solution. However, the line had to be drawn somewhere and £20,000 is a good start."

Gillian Guy, chief executive of Citizens Advice, said: "The changes will help people who are in serious, unmanageable debt to find a way out. Raising the bankruptcy debt threshold and the debt relief order limit will increase options for people who would previously have had no choice but to declare themselves bankrupt."

The changes were announced by the business minister Jo Swinson on Thursday after a consultation she had launched last summer. I hope this is just the start of a thorough overhaul of the whole area. No one should be encouraged to go bankrupt or into a debt relief order as an easy way out of debt, but people do need an increasingly wide range of different solutions these days. We must make sure that every single person struggling to repay what they owe is offered a way to climb out of their debt woes.

twitter: @simonnread

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