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Collecting bad debts: new bankruptcy threshold

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IMAGE: Pen poised to write on blank chequeFunds cannot be recovered from those who have none. It is therefore important to find out as much as you can about your customer and identify who they are (an individual, limited company, firm) before extending a line of credit to them and not to allow any credit to reach unmanageable proportions.

IMAGE: Sarah Payne, Cambridge Litigation Solicitor

Sarah Payne, Litigation Solicitor

But if, despite your credit control procedures, you are landed with a bad debt, how do you ensure your debt is prioritised by the debtor? A key point is that if a debt is undisputed, beginning insolvency proceedings (provided the debt exceeds the relevant financial threshold) will often prompt a reaction even from those struggling to stay afloat and can be a cost effective means of recovering the money and avoiding bad debts. For example, we used this procedure successfully on behalf of several of our clients against Kilby and Gayford Ltd who have since entered administration and are estimated to owe £34 million.

If the debt is the subject of a genuine dispute, then the way forward is to despatch a letter of claim followed by Court action. The process takes longer but as soon as Judgment is obtained there are a variety of enforcement methods available depending on the debtor’s assets:

  • The bailiff or in some cases the High Court enforcement officers can be sent to the debtor’s premises with a view to recovering goods.
  • An attachment of earnings can be used if the debtor is employed.
  • A third party debt order if the identity of the debtor’s bankers are known or if others are known to owe the debtor money.
  • A charging order over land or property which can eventually be enforced by sale.
  • Insolvency proceedings provided the debt exceeds the relevant financial threshold.

It is important to find out as much as possible about the debtor to maximise recovery opportunities. If necessary, information can be obtained about assets through the oral examination procedure.

Threshold for bankruptcy petition increased to £5000 from October 2015
From 1 October 2015, the financial threshold for a creditor to present a bankruptcy petition was increased from £750 to £5000. This is the first increase since 1986. The move prevents ruthless creditors bankrupting individuals over small bad debts but may not truly balance their respective interests.

The threshold for a winding up petition remains unchanged (at least for the present) at £750

By Sarah PayneLitigation Solicitor at Cambridge solicitors Barr Ellison.

Disclaimer: While we do all that is possible in terms of ensuring its accuracy, this blog contains general information only. Nothing in these pages constitutes legal advice. You need to consult a suitably qualified lawyer from the firm on any specific legal problem or matter.

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