The Swinging Bankruptcy Pendulum

Steve ElliottPosted 26 October 2015 By Steve Elliott, Business Recovery and Insolvency Partner In Business Recovery & Insolvency

In November 1761, John Perrott, the last bankrupt to be hanged in England, left his prison cell in London’s Newgate Prison for the short, one-way trip to West Smithfield to face the gallows. Hanging bankrupts was thankfully rare but improvements to the regime were slow for the next 100 years or so; a recalcitrant debtor could still expect to spend 2 hours in the pillory with his ear nailed to the cross-bar!

The first real signs of rehabilitation came with the 1914/26 Bankruptcy Acts which promised the possibility of discharge from bankruptcy for honest debtors, but the real changes came with the Insolvency Act 1976, introducing automatic discharge for most debtors in 5 years.

This was reduced to 3 years by the Insolvency Act 1986 (which also introduced Individual Voluntary Arrangements) and then to the current 1 year by the Enterprise Act 2002, which also saw the advent of Debt Relief Orders (DROs), principally for consumer debtors with debts up to £15,000 and minimal assets/disposable income.

Since 1 October ’15, this already benign regime has become more so; the minimum debt required to support a creditor’s bankruptcy petition has been £750 for the past (nearly) 40 years and that has now been increased to £5,000. Credit controllers and others who would routinely issue a Statutory Demand for smaller debts will not now have that option and will have to find other ways to shock smaller debtors into payment.

The DRO barrier has also changed in the debtor’s favour, the debt limit is now £20,000 and the asset limit is £1,000 (maximum disposable income remains at £50 a month).

The opportunity for individuals or the self-employed to avoid formal bankruptcy have never been greater, provided as always that they take expert advice early!

To discuss this or anything else contact Steve Elliott on 01793 818300 or send him an email.

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