Threshold on creditors Bankruptcy petitions to rise

The minimum level of debt for a creditor to petition for bankruptcy could rise to £3,000 from £750, under proposals announced by the minister for insolvency.

Edward Davey unveiled several proposals for consultation, including raising the petition debt levels for creditors, as he responded to the government’s call for evidence for its review of personal insolvency.

The minister’s proposals could impose a raft of changes to practices and processes across the personal insolvency profession.

They include creating a protocol setting out what to expect from a Debt Management Plan (DMP) and enabling the Money Advice Service to perform a central role in the coordination of debt advice. Davey added that the Money Advice Service should research and develop a delivery model for debt advice.

Voluntary codes of forbearance, where debtors need breathing space to seek advice, could be also be strengthened under the proposals.

The minister also unveiled a consultation on how to create access for bankrupts to a basic bank account.

New £3000 debt threshold proposed

On proposing to raise the petition debt threshold to £3,000, Davey said the current level of £750 has not been increased since the Insolvency Act 1986 came into force. He explained that the ability to “threaten someone with bankruptcy for such a small amount is disproportionate.”

James Falla, senior debt expert at BeatMyDebt agrees. “To be able to threaten to make someone Bankrupt for a debt as low as £750 does seem out of date. Increasing this threshold to £3000 would stop the threat of bankruptcy being used  debt collection tool where it is clearly not appropriate to do so” he said.

The minimum level of debt for a creditor to petition for bankruptcy could rise to £3,000 from £750, under proposals announced by the minister for insolvency.

Improvements in debt advice needed

Davey said: “”While it is clear that stakeholders have strong concerns about some aspects of the personal insolvency framework, no strong case has been made for a radical shake-up.

“However, I am convinced that there is more that can be done to improve the delivery of debt advice to the most vulnerable and intend that Money Advice Service take up this work.”

He added: “I want to see creditors, debtors and particularly providers working together to improve standards in debt management, so that debtors are directed only to those operating the very best service, leaving no place for the rogue providers who are only in it to make money for themselves.”

R3 vice president Lee Manning said: “The minister revealed that the government recognises the potential for regulatory reform of debt management services. We have called for better regulation of the DMP industry for some time.

“R3 research shows that DMPs are often unworkable because the level of debt is too high, and 10 per cent of individuals in a fee-charging DMP were not told they would be charged until the scheme began.

“We call on the government to go beyond recognising the need for reform and make the necessary changes to the industry. R3 suggests the regulation of the DMP market be removed from the OFT and become the responsibility of the Insolvency Service.”

James Falla welcomed the calls for improved standards. “Improving standards for debt management advisers needs to be given greater priority. It is highly likely that we will see increased numbers of people requiring debt advice and services over the coming years. They need to be assured of a high level of service” he said.

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