Debt Relief Orders to be shaken up

Debt has long been a problem for many people in society and, since 2009, debtors who meet strict eligibility criteria have been able to apply to obtain what is known as a ‘Debt Relief Order’.

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Debt Relief Orders to be shaken up

Debt has long been a problem for many people in society and, since 2009, debtors who meet strict eligibility criteria have been able to apply to obtain what is known as a ‘Debt Relief Order’. The purpose of these orders was to give debtors a clean slate by having the debts included in the DRO written off after the DRO period expired, which is usually 12 months.

A DRO does not apply to all debts, for example, child maintenance, student loans and TV licence fees still have to be repaid. Any debts that are incurred following the DRO being granted are also not captured by the DRO and creditors can still pursue these.

Since 2009 the criteria to apply for, and obtain, a DRO has been that:

  1. The balance owed is £20,000 or less;
  2. The debtor has less than £50 to spend each month, after paying tax, National Insurance and normal household expenses;
  3. The debtor has lived or worked in England or Wales in the last 3 years;
  4. The debtor’s assets are not worth more than £1,000 in total; and
  5. The debtor has not had a DRO in the last 6 years

This has meant that creditors whose customer has entered a DRO have been unable to recover their debt and now, in the midst of the economic fallout from the COVID pandemic, the government has today (12 January 2021) published proposals which have the potential to increase creditors: losses by reforming the eligibility criteria for DRO’s.

The proposals are to:

  • Increase the total amount of debt allowable to £30,000 (from £20,000);
  • Increase the value of assets owned by the individual to £2,000 (from £1,000). There are no proposals to change the items excluded from this calculation nor make any change to the £1,000 limit on the value of a domestic motor vehicle; and
  • Increase the level of surplus income to £100 (from £50) per month.

In publishing the proposals, the Government claims that “By increasing the asset, income and debt thresholds as proposed around 15,500 more people could be eligible for a DRO, representing a 58% increase on the number of individuals who obtained one in 2019/20”.

Whilst this will be welcome news for those struggling financially if the changes are implemented, creditors risk losing out further. It would therefore be prudent to assess your current debtors and the amounts due, if payments are not being made, to assess the risk of a DRO being obtained and the balance having to be written off.

For more information on these changes or to discuss cases, please contact craig.chappell@keebles.com

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