The number of UK residents filing for expanded debt relief orders (DRO's), dubbed as 'bankruptcy light', has risen by 8.2%. New figures, released on 30 April, reveal that Britons are making the most of widened eligibility, showing the number of personal insolvency cases had increased sharply in 2016.
So-called Bankruptcy light works by stopping repayments of debts for 12 months. In some cases the debt is written off completely if a debtor's personal situation hasn't improved within the time frame given. Previously, only people with debts below £15,000 could apply for debt relief orders, but the figure was increased to £20,000 in October 2015.
The Daily Mail reports that the Insolvency Service said that around a quarter of DRO cases recorded between January - March 2016 had involved debts which had exceeded the previous limit, seeing an increase of 8.2% for the year so far - a 3.4% rise on figures within the same time period a year ago in 2015.
"Personal insolvencies are lower than a year ago," said Sarah Albion, chief executive of the Insolvency Service, commented. "The change to eligibility criteria for debt relief orders, introduced in October, has enabled more people to get the solution that is right for them."
The number of people filing for bankruptcy had also declined by 10.8%, compared with that of the previous year, following the general downward trend for bankruptcy claims. However, there are fears that the new eligibility criteria would tempt people to take on too many financial commitments, due to being 'lured' by personal insolvencies' low interest rates. "'Taking out a personal loan has hardly ever been so cheap and demand is rising" said Mark Sands, a personal insolvency partner at RSM, according to Yahoo Finance.
"While taking on new debt at current low rates may seem very manageable at the outset, sudden shocks - such as those currently affecting employees in the steel industry or retail sector for example - can result in things getting very difficult very quickly indeed.