Coalition grants respite to debtors

People struggling with debt received a boost yesterday with the announcement that the threshold for forcing debtors into bankruptcy was being raised from £750 to £5,000.

The limit was last set in 1986 and the new rules will come into effect in October, said Jo Swinson, the business minister. At the same time, the maximum amount of debt that can be covered by debt relief orders – the low-cost alternative to bankruptcy – will rise from £15,000 to £20,000.

Matt Barlow, chief executive of the debt charity Christians Against Poverty said: “Currently, more than a third of our clients have too much debt to access a relief order and they have too little money to afford bankruptcy fees. They are stuck – literally too poor to go bankrupt... We had campaigned for the limit to rise to £30,000, which would have seen more than half of our clients being able to afford this debt solution. However... £20,000 is a good start.”

There have been 140,861 debt relief orders since they were introduced in 2009.

Gillian Guy, chief executive of Citizens Advice, said: “Today’s changes will help people who are in serious, unmanageable debt to find a way out.”

Giles Frampton, president of R3, the insolvency trade body, said: “The rise in the creditor bankruptcy petition threshold is welcome, although £5,000 is far higher than expected.

“It is right that the petition be increased – £750 was an entirely inappropriate level and the protection it offered debtors had been steadily eroded by inflation over the decades.”