18Jan

The Insolvency Service has proposed increasing the amount of debt that can be held in a Debt Relief Order from £20,000 to £30,000.

Other proposed changes include making DROs available to people with surplus income of up to £100 per month, whereas the existing limit is £50 per month; and increasing the value of the individual’s permitted assets to £2,000 from the current £1,000.

The current eligibility criteria have been in place since 2015. They say that, in order to be eligible for a DRO, 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

Essentially, the proposals are to change these headline figures to £30,000, £2,000 and £100.

DROs allow people with problem debt to be protected from creditors’ actions, and to have their interest frozen for 12 months. If their debt position doesn’t improve, debts can be written off after 12 months.

The proposals are designed to give more people access to this form of debt solution.

The consultation on the proposals closes on February 25 2021 and the changes are anticipated to be in place by the spring.

Business Secretary Kwasi Kwarteng MP 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.”

Joanna Elson CBE, chief executive of the Money Advice Trust, said:

“We welcome these proposed improvements to DROs – and we are pleased the Insolvency Service is listening on the need to adapt the debt options landscape to Covid-19. Beyond these changes, we ned a full review of all debt options in the wake 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.

“However, we regularly complete 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.”

Scott Robert are regulatory risk, compliance and strategy experts, contact our team today for FCA compliance and authorisation help.