Government announces review into Debt Relief Orders

Posted by Michael Bolt in Dealing with Debt on 15 August 2014 - Michael worked as a Credit Analyst at checkmyfile until 2015

The government has announced a review into the Debt Relief Order (DRO) process, seeking to establish how they have performed since there in 2009, as well as possible methods through which they could be improved.

The review, spearheaded by Business Minister, Jo Swinson, has seen the Insolvency Service issue a ‘call for evidence’ from relevant parties such as debt advice charities.

DRO’s were introduced in England and Wales in 2009 for people struggling with debt and have been seen as a low-cost alternative to bankruptcy. Currently, to be eligible for a DRO, an individual has to have outstanding debts of less than £15,000, not own their own home, have less than £50 per month spare income and less than £300 worth of assets.

Around 130,000 Debt Relief Orders have been entered into since they were launched. Of the DROs that have been entered into, approximately half were for debt between £5,000 and £10,000.

Around 30,000 DROs are made each year, with women between the ages of 25 and 34 years old representing the biggest group to make use of DROs.

A DRO is obtained from the Official Receiver for a £90 fee and means that someone’s creditors cannot recover their money without permission of the court. A DRO is typically ‘discharged’ after 12 months, although the DRO remains on a credit report for a period of six years.

Some experts have claimed that the arguably strict criteria for a DRO have meant that many people were unable to access this type of formal insolvency as they owe too much to their lenders or own too much in assets. This has led some people to enter into more informal ‘Debt Management Plans’, that are less regulated than DRO’s and can be high cost.

As well as the DRO review, a ‘call for evidence’ has also been issued on the possibility of raising the bankruptcy debt threshold. The bankruptcy debt threshold is currently set at £750 and has not been raised in 28 years.

Giles Frampton, of the insolvency trade body R3, has welcomed the consultation, and says, “Although Debt Relief Orders are only a relatively new part of our personal insolvency landscape, personal debt issues move on so quickly that it is already time to look at them again.”

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