Changes to Debt Relief Orders Explained

The government announced a range of new measures to aid vulnerable individuals facing problem debt.

Upon the completion of a consultation that ran from 12th January 2021 to 25th February 2021, the government announced some changes to the monetary eligibility criteria for Debt Relief Orders in the UK. Such changes came into effect at the end of June 2021 (29th) and are thought to impact over 13,000 people in the following 12 months.

Bankruptcy

Introduced in 2009, Debt Relief Orders (DROs) provide easily accessible debt relief at a lower cost to those with some level of unmanageable debt. They are therefore available to those who have not acquired a large amount of unmanageable debt but still have no means in which to pay back their creditors. There is a strict criteria of monetary eligibility that must be achieved in order to obtain a DRO.

In response to the consultation announcement, 148 written responses were submitted and the government chaired several meetings with significant stakeholders from the creditor and debt advice community in the UK.

A report published by the Insolvency Service suggested that responses were ‘generally polarised between two positions:

  • Stakeholders from academic or debtor communities implored the government for greater accessibility to DROs in order to further address the pandemic’s impacts on individual financial situations
  • Stakeholders from creditor and insolvency communities voiced concerns that significant changes to DROs would ‘distort the personal insolvency regime’ by reducing differentiation between DROs and alternative insolvency solutions

After reviewing their responses, the Government has agreed to make amendments to DRO legislation and to effect such changes as quickly as possible.

The proposed changes include:

  • The total amount of allowable debt will be increased from £20,000 to £30,000
  • The allowable value of assets owned by the individual will be raised to £2000
  • The maximum potential value of a single domestic motor vehicle which can be disregarded by the official receiver will be raised to £2000
  • The level of allowable surplus income will be raised to £75 per month

By increasing the total amount of allowable debt, the Government aims to make DROs more accessible and remove the idea that DROs are only achievable to those with a low level of unmanageable debt. However, most responses suggested an increase from £20,000 to £50,000 or, indeed, no cap at all.

After a year of historically low insolvency and bankruptcy applications (thought to be the product of widespread government intervention to combat the repercussions of the Covid-19 pandemic), the DRO amendments appear to be an attempt to ensure figures do not rise upon the lifting of emergency financial measures.
The changes in legislation are thought to enable over 13,000 more people to successfully obtain DROs throughout the following twelve months.

Click here to read more about the DRO amendments.

If you are worried about debt, bankruptcy or possible insolvency, contact Asset Solutions today on 0800 689 3861. Our experienced team members provide unrivalled assistance to individuals throughout the entire insolvency process and help to stop bankruptcy. We understand that anyone facing problem debt is likely to feel overwhelmed and intimidated. That’s why we’re here to support you throughout the process and help you achieve the best results possible for your situation. Contact us today for more information.