16 Nov 2015 / Back to latest updates

New debt threshold for bankruptcy proceedings restricts creditors’ recovery options

On 1 October 2015, the minimum debt for which a creditor could issue bankruptcy proceedings against a debtor was raised from £750 to £5,000.

The £750 threshold was fixed in 1986 and did not move with inflation which would have seen it rise to approximately £1,700. Whilst it has been acknowledged for some time now that the £750 threshold was too low, the jump to £5,000 has affected a significant number of creditors.

Small businesses in particular should consider reviewing existing contractual arrangements with debtors to ensure that they avoid accruing hard to recover <£5,000 debts. Consider revising standard contractual terms to reduce credit extended to clients.

The public sector will be significantly affected by the change. Registered providers (housing associations) and local authorities, many of whom have significant numbers of small debtors on their books, are being forced to reconsider how they deal with their substantial and rising debt books.

Even local authorities, who can obtain Liability Orders for unpaid business rates and council tax through a streamlined procedure in the Magistrates’ Court, have been affected by the new threshold and will have to adopt alternative methods to secure or recover these taxes. Across the UK, the Government has announced that council tax debts alone amounted to approximately £2.5bn in 2014, so this is a significant issue.

However in our experience at The Debt Collection Centre (#tdcc) it is often merely the threat of bankruptcy that yields payment. Whilst creditors have lost an important tool in their small debt recovery arsenal we have the necessary expertise to recover those monies due to you, together with accrued interest and compensation. Rather than feeling you must write-off those debts call us and find out how we can assist!