The Government has launched a new consultation which is launched aimed at extending debt solutions and helping vulnerable people in financial distress get a fresh start.

The proposals have been outlined by the Government to increase the financial eligibility criteria for debt relief orders (DROs), helping more people deal with financial difficulties to get a fresh start. Research shows that the demand for debt advice could increase by up to 60% by the end of 2021 and around 3 million more people than before the pandemic will need support with problem debt by the end of 2021.

The government is publicly consulting on changing the eligibility criteria to enter a DRO 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)
  • increase the level of surplus income to £100 (from £50) per month

DROs were developed and introduced in April 2009 following a consultation by the Government in 2004 (“A choice of paths: better options to manage over-indebtedness and multiple debt”) that identified there were people in long term debt difficulty who had nothing to offer their creditors, such as assets or disposable income, and for whom bankruptcy would be a disproportionate response. Delivered in partnership with the debt advice sector, DROs provide low cost, easy access to debt relief for those with relatively low levels of unmanageable debt, and no means with which to pay their creditors, providing a fresh start for the most vulnerable. At the end of the DRO period (usually 12 months) the debts included within the order are written off (‘discharged’) and the individual is no longer responsible for paying them.

In order to be able to apply for a DRO, a person must meet strict monetary eligibility criteria and certain other conditions (for example that they have lived or worked in England or Wales in the last 3 years). The monetary eligibility criteria, which have been in place since 2015 are that a person must:

  • have debts of £20,000 or less
  • own assets that are not worth more than £1,000 in total (essential household items such as bedding, and furniture are excluded as are tools or other equipment that are essential for work. In addition, one domestic vehicle worth no more than £1,000 is excluded from the asset criteria)
  • have no more than £50 surplus income each month, after paying tax, national insurance and normal household expenses

This consultation is seeking views on a proposal to increase the existing monetary eligibility limits of DROs. This will give more people with low-levels of assets and low income who are in problem debt access to a suitable and proportionate option for debt relief. As with any debt relief solution, however, it is important to balance the interest of both creditors (those that are owed money) and debtors (those who owe money).

The consultation will run for 6 weeks and, subject to the consultation any changes are anticipated to be put in place in Spring 2021.

Business Secretary Kwasi Kwarteng said “Suffering from financial difficulties places a huge amount of stress on people’s mental health and wellbeing, which is why we are committed to giving more people who are struggling with debt a chance for a fresh start.”

“Debt Relief Orders are a valuable tool for supporting vulnerable people to get to grips with their problem debts. Our plans to increase the eligibility criteria will mean many thousands more could benefit from this help.”

Phil Andrew, CEO of StepChange Debt Charity, said “Lower-income households with few assets are among those most deeply affected by debt during the pandemic. Extending eligibility for debt relief orders will help to give more people a chance to avoid the long-term misery of being trapped by debt that they cannot afford to repay over a reasonable period.”

The Money Advice Trust, the charity that runs National Debtline, has welcomed the Government’s proposed changes Joanna Elson CBE, Chief Executive of the Money Advice Trust said “We welcome these proposed improvements to Debt Relief Orders – and we are pleased the Insolvency Service is listening on the need to adapt the debt options landscape to Covid-19.”

“For many people currently not eligible, DROs could provide an important alternative to the costly and challenging bankruptcy route. In addition to widening eligibility, the government should also consider temporarily waiving the £90 fee to apply, which presents a barrier for the growing number of people for whom a DRO is the best option.

“Beyond these changes, we need a full review of all debt options in the wake of Covid-19 – as well as a clear timetable for the implementation of the government’s forthcoming Statutory Debt Repayment Plans, which will play an important role in supporting households to recover from the impact of Covid-19.”

Deborah Ware, Chief Operating Officer of debt advice provider Financial Wellness Group said “The changes to the DRO rules proposed in this consultation will help more people with serious problem debt get a fresh start. DROs are a powerful debt solution as they enable people to clear their debts in 12 months without having to make payments towards them. However, we regularly complete DRO applications for customers but are unable to submit them because the customers don’t have £90 to pay the Insolvency Service fee.  To ensure people who need a DRO are able to access one we’d also like to see the application fee reduced or waived.”