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Debt Relief Orders to be reviewed

Debt Relief Orders (DRO’s) were introduced in England and Wales in 2009 as low cost and less drastic alternative to bankruptcy suitable for when an individual is struggling with debt and on a low income. Almost 30,000 DRO’S are granted by the official receiver each year with almost half being for total debts of between £5,000 and £10,000.

Once a DRO is in place it prevents the individual’s creditors from recovering their money without the court’s permission. The court fee is £90 and the individual is usually discharged from their debts after 12 months.

Similar to bankruptcy, throughout the term of the DRO, the individual will be required to accept certain restrictions which prevent them from:-

  • Borrowing more than £500 without advising the lender about the DRO.
  • Act as a director of a company.
  • Create, manage or promote a company without the court’s permission.
  • Manage a business without telling those you do business with about the DRO.

Once the DRO restrictions have been removed, usually after 12 months, the debts are written off. However, the DRO will be noted on an individual’s credit history and as a result the individual may find it difficult to obtain credit in the future.

It all sounds reasonable enough. So why is the procedure requiring a review? Although a ‘success’ in terms of the number of individuals using the procedure, the current circumstances applicable for a DRO are still limited. The individual must:-

  • Have less than £15,000 of debt.
  • Have less than £50 a month spare income.
  • Own less than £300 worth of assets and not own their home.
  • Have lived or worked in England and Wales within the last 3 years.
  • Have not applied for a DRO within the last 6 years.

Some experts have said that these restrictions mean that many people are unable to access this type of formal procedure because they have too much debt or own too many assets. As a result the alternative, not counting bankruptcy, is a less formal debt management plan and these can be costly.

The review of DRO’s is welcomed by the Citizen Advice bureau and Jo Swinson, the business minister who commented "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".

The government will shortly be launching the review, consulting debt advice charities, creditors and previous users of DRO’s. With more than 130,000 DRO’s entered into since they were introduced in 2009 it is anticipated that any future revising of the DRO’s will further enable individuals to access an insolvency procedure that is right for them.

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