A Bankruptcy Petition can be used by a creditor as a tool to recover money owed to them by forcing a debtor into bankruptcy.

The Law changes on the 1st of October, increasing the minimum level of debt for which an individual can be forced into bankruptcy from £750 to £5,000.

Why is The Change Happening Now?

The new proposals are regarded as long overdue by many as the creditor’s petition has not been considered for 29 years.  Inflation has had an undoubted influence on the change and debtors will be afforded more protection this this new minimum level of debt.  The Government are seeking to improve the help available to people struggling with debt and allow them to be safeguarded against life-changing debt recovery petitions for very small debts.

It is important to note that the law remains with respect to debtors who wish to voluntarily place themselves into bankruptcy and they need only have debts of £750 or above.

Whilst bankruptcy can be the best solution for some creditors, it is not always suitable, particularly where debts are low in value and the debtor has little or no assets remaining.  The aim of the new threshold is to renew the balance of interests between creditors and debtors.

How will this affect you as a creditor?

The new legal framework will allow individuals that are in debt to incur debts of up to £5,000 before a bankruptcy petition can be submitted. Imposing a bankruptcy petition should however only be used as a last resort to reclaim any unpaid debts. Ultimately it is unlikely that filing for a bankruptcy petition will result in the financial recovery of debts. Furthermore, after one year the bankrupt can walk away and no longer have to deal with the debt as they will be discharged.

3 Things You Can Do?

It is advisable take a number of steps to ensure that unpaid debts do not increase to large sums which could have detrimental affects on your financial position:

1.    Take steps to agree a repayment plan before debts become too large and out of control. However, do bear in mind that if you agree a repayment plan, consideration must be given to the Consumer Credit Act and the limitation it places on payment by instalments.

2.    As part of good business management, maintaining good credit control is important.  Make sure that any new individual client’s have their credit history checked.  It is important to continue to monitor their credit record throughout your business relationship to ensure that any credit issues can be spotted early.  Credit can be reduced accordingly if problems arise and ensure that any contract includes terms that allow you to monitor their credit and to take steps if required.

3.    If credit issues do arise, act early.  The new threshold of £5,000 will make it even more difficult to pursue a recovery of smaller debts and therefore if credit issues are established earlier then the options available to recover the debt will be greater.

Alternative Methods of Debt Recovery

Other methods of recovering unpaid debts may now increase as a result of the changes. These include:

  • Seizure of goods by Bailiffs
  • Seizure of goods by High Court Enforcement Officers (‘HCEO’)
  • Charging Order
  • Attachment of Earnings
  • Third party Debt Order
  • Order for a debtor to attend Court for questioning

How can MW help?

Whether you are a company or an individual, MW offer a range of debt recovery services tailored to your needs.  For advice contact Louise Tunstall, our specialist enforcement Solicitor, tel: 0203 551 8500 or email us at enquiries@mwsolicitors.co.uk.

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