Insolvency consultation leads to more… consultation

Bankruptcy and winding up petitions threshold may rise

The Government has announced a consultation on raising the level of debt that is required for a bankruptcy petition to be lodged at court. Currently, there must be debts of at least £750 before a creditor can petition for bankruptcy. This limit has remained the same for bankruptcy and winding up petitions since the Insolvency Act was brought into force in 1987 so it does seem overdue for review: £750 in 1987 was a considerable sum in real terms, in comparison to today.

R3, the leading insolvency trade body, has suggested that the limit should be raised to £3,000 for both bankruptcy and winding up petitions. The impact of this would be to limit the ability of creditors to use the draconian threat of bankruptcy (or winding up for companies) to enforce relatively low levels of debt. There is anecdotal evidence to suggest that local authorities are increasingly using bankruptcy petitions to enforce unpaid Council Tax liabilities, typically of less than £2,000.

This move was first suggested by David Cameron during the election campaign in January 2010 (see my earlier blog post about this) and today’s announcement follows a more wide-ranging consultation on consumer finance and debt issues. It is unfair to suggest that this is the only interesting announcement to come out of the consultation, but the reality is that the Government’s response to the consultation was to say that generally things are going OK and they will just keep an eye on everything and, guess what, there is more consultation planned.

To me, this suggests that the coalition Government has bigger fish to fry at the moment and they are kicking consumer debt and personal finance topics into the long grass until public sector cutbacks, defence spending reviews, the pullout from Afghanistan, Libyan air operations, the Euro zone debt crisis and the News International affair are under control. Or until the media decides that consumer debt and personal finance and finance is the hot topic.