People in England and Wales with low levels of debt will now be able to avoid bankruptcy, which can have a serious impact on future finances, as the Government has increased the minimum level of debt that can force people into this last resort option to £5,000 from £750.
The plans, which were first announced in January 2015 and took effect from 1 October, are expected to prevent more than 3,000 people per year being declared bankrupt. It's the first time in nearly 30 years the limit has been revised.
The threshold only however applies to those in England and Wales, as debt management is devolved in Scotland and Northern Ireland. See our Debt Help guide for information on what to do if you're struggling and our Debt Solutions guide for more.
From 1 October 2015, the maximum amount of debt that can be covered by a debt relief order (DRO) also rose from £15,000 to £20,000. DROs allow a debtors' repayments and interest to be frozen for 12 months. If their financial situation hasn't changed at the end of this period, then their debts are written off.
Further, the total value of assets, such as savings and shares, those applying for a DRO are allowed to have has also risen from £300 to £1,000.
The debt problem checklist
If you're struggling to manage your cash and reduce your outgoings, here are some tips to help:
- Budget and reduce outgoings: Get a handle of what you spend to future-proof your finances. See our Free Budget Planner.
- Earn under £73k? Check your benefits: Any family with an income of under £73,000 may be entitled to some form of benefit. See our Benefit Check-up tool.
- Can you get help paying the mortgage? There is a Government scheme specifically to help mortgage holders who are struggling to make monthly repayments, which includes an extra benefit to pay the interest for you. See our Mortgage Arrears guide.
- Reclaim, reclaim, reclaim: If you have, or have had a loan, then it's crucial to check whether you were mis-sold payment protection insurance, which could've cost you £1,000s, to see if you can get the cash back. For those in debt, it's very likely some of it has been made up of fees and charges. If you've incurred bank or credit card charges for going beyond your limits, you may be able to get the cash back. It's also possible you may be in one of 400,000 homes in the UK paying too much for your council tax.