The Government has announced that it will legislate to increase the number of people eligible for Debt Relief Orders (DROs) with the aim of helping more people to get out of problem debt.
The new measures will mean that more people will be able to access the debt solution, giving them a fresh start, as a result of the changes which will come into force at the end of June.
The changes to DRO eligibility criteria will see the level of debt at which people can apply for a DRO increase from £20,000 to £30,000. It is expected that over 13,000 more people may use DROs in the next 12 months compared to 2019, an increase of nearly 50 per cent.
The changes to the criteria will:
- Increase the threshold on the value of assets that a debtor can hold and be eligible to enter into a DRO from £1,000 to £2,000.
- Increase the value of a single motor vehicle that can be disregarded from the total value of assets from £1,000 to £2,000.
- Increase the level of surplus income received by the debtor before payments should be made to creditors from £50 to £75 per month.
- Increase the total debt allowable for a DRO from £20,000 to £30,000.
The new criteria follow a consultation earlier in the year. The changes are due to come into effect on 29th June to coincide with the end of the first 60 days of the Government’s Breathing Space scheme, which began on 4th May 2021.
Debt Relief Orders were introduced in 2009 and are aimed at individuals with relatively low levels of unmanageable debt who have nothing to offer their creditors, such as assets or disposable income, and for whom bankruptcy would be a disproportionate response. A DRO sees debt repayments and interest frozen, while creditors are unable to pursue debtors for a 12-month period, after which the debts are written off.
Minister for Corporate Responsibility Lord Callanan said: “Debt Relief Orders help those with problem debt get to grips with their finances, these changes will enable more people experiencing problem debt to get a fresh start.”
Debt Charity StepChange has welcomes the changes, Peter Tutton, StepChange Head of Policy, Research and Public Affairs, said: “We are pleased to see the Insolvency Service confirmation of increases to the asset limits that will enable more people to access Debt Relief Orders. DROs can act as a valuable form of “reset” from debt for some people, and are likely to be particularly useful in the wake of pandemic debt. However, we very much agree that the changes need to form part of a wider review of the insolvency landscape, and we look forward to contributing to the Government’s forthcoming call for evidence on this.”
Kevin Still Director at DEMSA said “DEMSA was one of the 148 written responses to the consultation and we welcome the Government response, but the change timetable is tight, especially as most debt advice providers are just getting familiar with Statutory Breathing Space and the new Conduct Rules (SMCR) for frontline staff. The new criteria will have to be applied to existing DMP portfolios on annual review and many will already have undertaken portfolio analysis to see if DMP clients are now eligible for a DRO under new monetary criteria.”
“It will be interesting to see how quickly the Government react to the Woolard report and the long-term impact of StepChange having to make the cuts they have because debt advice demand hasn’t yet materialised, but is anticipated later in 2021 or early 2022. Many DMP contributions have already suffered because of the impact of COVID-19. The DRO changes may also see less debt advice sessions resulting in DMP recommendations.”
“It is interesting that the surplus income thresholds have reduced from £100 to £75 since the original consultation paper in January 2021 as creditor organisations and the insolvency profession were strongly opposed to this level of increase. The debt advice sector supported the increase to £100.“
Whilst Deborah Ware, Chief Operating Officer at Financial Wellness Group said “The changes to the Debt Relief Order (DRO) criteria announced by the Insolvency Service today will allow many more people struggling with severe problem debt to access this effective debt solution.”
“However, we are disappointed that the Insolvency Service hasn’t taken the further step of proposing to review the DRO fee. The majority of DRO customers either have very low, or negative, disposable income and the fee can be a real barrier that prevents them from accessing the solution when they need it.”
“In our response to the DRO consultation, Financial Wellness Group also highlighted that the public insolvency register deters many people who should take a DRO, or another insolvency solution, from doing so. Our #NoShameInDebt campaign calls for the end of the public register to help reduce the stigma and embarrassment around debt, breaking down another barrier that prevents people from seeking debt advice sooner.”