The government has launched a review of debt relief orders (DROs) as part of wider plans to examine current debt relief measures for the financially vulnerable.
Launched in England and Wales in 2009 as a low-cost alternative to bankruptcy, around 30,000 DROs are made each year. Almost half are for debts of between £5,000 and £10,000. However, restrictions on who can use a DRO means that many people – possibly because they have racked up too much debt, or own too many assets – are unable to access one.
DROs can only be obtained if someone:
- owes less than £15,000
- has a monthly spare income of less than £50
- does not own their home
- has less than £300 worth of assets
A DRO can be obtained from the official receiver for a fee of £90. Once a DRO has been granted, creditors can’t recover their money without permission from the court. An individual is discharged from their debts after 12 months, but the DRO will remain on their credit record for 6 years.
As part of the shake-up, the Insolvency Service has called for evidence on how DROs are working from those who provide debt advice, such as charities, those who entered into a DRO, and creditors. It will consider whether or not the rules, and eligibility levels, need to be changed.
Jo Swinson, business minister, said: "Helping people to break out of the cycle of problem debt is a key objective for the government. We want to ensure that debt relief orders are continuing to meet this objective."
Gillian Guy, chief executive of Citizens Advice, said: "People who hit financial rock bottom need to have a way out. A review of DROs could help people whose spiralling debt has left them with few options."
Earlier this year, Stuart Frith, chair of insolvency trade body R3's personal insolvency, called for the limits to be raised to £30,000 for debts, and £2,000 for assets.