Debt Collection Changes Under the New Government: How Will They Affect Your Business?

After months of campaigning, the election is finally over. But what does David Cameron’s victory mean for debt collection rules in UK? What changes are expected, and how will they affect your business?

Bankruptcy Petition Limit Raised

With the Conservatives returned to power, they are likely to pick up where they left off, and the most significant change ahead is the raising of the bankruptcy petition limit from £750 to £5,000, set to come into force on 1st October 2015.

What Is the Bankruptcy Petition Limit?

If you are owed money by an individual, you can apply to the courts to make that person bankrupt via a bankruptcy petition. The bankruptcy petition limit is the minimum amount of debt needed for a creditor to be able to take this action.

Why Is This Change Being Brought In?

The purpose of this change is to prevent bankruptcy proceedings being initiated over relatively small debts. Given the severe negative effects of bankruptcy on individuals and their families, the government wishes to reserve bankruptcy proceedings for situations involving sizeable debts.

What Does This Mean for Your Business?

Essentially, this change restricts the ability of creditors to initiate bankruptcy proceedings against individuals. So, if someone owes you less than £5,000, you will no longer have recourse to one of the most effective debt recovery tools, and will have to rely on other remedies. Potentially, this could prevent your business from recovering money owed to it.

Debt Relief Orders (DROs) More Accessible

Also on 1st October 2015, restrictions on those eligible for DROs will be loosened. These Orders will become available for debts of up to £20,000 rather than £15,000, and for people with assets of up to £1,000 rather that £300.

What Are DROs?

Debt Relief Orders are a low cost alternative to bankruptcy: they allow debts to be written off in situations where the debt does not exceed a certain amount and the debtor has few assets.

Why Is This Change Being Brought In?

Currently, many debtors are unable to afford bankruptcy, which incurs substantial fees, yet are unable to access a DRO because their debt is too large or they have too many assets. These changes increase the availability of DROs for those in dire financial circumstances.

What Does This Mean for Your Business?

If you are owed less than £20,000 by an individual with few assets, it increases the likelihood that their debt could be written off, meaning you would not receive the money you are owed. However, this type of debtor would be unlikely to repay in any case, so the practical impact on your business would be no different in many situations.

What Should You Do About These Changes?

If your business is owed money by individuals with financial problems, these changes could make it more difficult for you to seek repayment. Of course, the most effective measure is to look out for customers experiencing financial issues, and avoid dealing with them completely. But if your debtors do fall behind on payments, stay in regular contact with them and try to reach a viable solution. For best results, consider hiring P&J Debt to pursue the debt on your behalf.