Call for debt to be simplified to help those impacted by the pandemic

A new report from Christians Against Poverty (CAP) has shown  that over 50% of their clients forced into bankruptcy, should be allowed to use a much cheaper route out of debt

CAP is calling for urgent changes to be made to Debt Relief Orders (DROs) so thousands of people can access a simpler way out of debt during the pandemic.

CAP’s Social Policy Manager, Rachel Gregory, explains the difference between DROs and bankruptcy “DROs are more affordable, take less time and there’s less stigma attached, compared to bankruptcy. They are designed for people on low incomes who have no other option to get out of debt. To apply for a DRO costs £90 but a bankruptcy application is £680. This is money people in debt do not have. ‘

“Over half of our clients who enter bankruptcy are the target demographic for a DRO, this highlights why change is desperately needed as soon as possible. They should be allowed to go through a DRO but can’t because of the difficult eligibility criteria.”

“The Department for Business, Energy and Industrial Strategy (BEIS) and the Insolvency Service are proposing changes to the eligibility criteria for the DRO. This is a positive step in the right direction for people in debt but these changes do not go far enough.”

CAP is calling for several changes to the DRO criteria but the main focus is on raising the debt limit from £20,000 to £50,000. 

BEIS and the Insolvency Service are proposing it be increased to £30,000 but Gregory says this will still exclude thousands of people who should be eligible: “Changing the debt limit from £20,000 to £50,000 will allow 90% of CAP clients, who’re wrongly excluded from a DRO, to be able to apply for one.”

“So many people will need to access a DRO because of pandemic debts, it’s vital we simplify the solution so they can do this and start to rebuild their lives.”

“It would also be beneficial for creditors. They wouldn’t have to waste resources trying to collect debts that cannot be repaid. Many would also save money by avoiding unnecessary investigations undertaken in the bankruptcy process.”

Other changes CAP is calling for include:

• Allowing additional pre-existing debts to be scheduled in the DRO after the application has been made, if this would not breach the debt limit. 
• Raising the vehicle value threshold to £2,000 to reflect the current costs of a low-priced reliable vehicle, and excluding mobility scooters from the limit. 
• Regular reviews of the DRO monetary eligibility criteria (at least every three years) to futureproof access to the solution.