Debt Relief Orders, or DROs, were originally introduced as a low-cost alternative to bankruptcy, a little like individual voluntary arrangements (IVAs) but for people with very low income and assets. Until now they have been available to tackle debts of up to £15,000, but we are approaching the midpoint of an important countdown in theRead More
Debt Relief Orders, or DROs, were originally introduced as a low-cost alternative to bankruptcy, a little like individual voluntary arrangements (IVAs) but for people with very low income and assets.
Until now they have been available to tackle debts of up to £15,000, but we are approaching the midpoint of an important countdown in the history of DROs.
On January 15th 2015, business minister Jo Swinson announced plans to increase the maximum threshold of DROs to £20,000, and this is still likely to happen in October, putting us roughly halfway between the two dates.
This should allow 3,600 more people each year to use DROs instead of ‘full’ bankruptcy, which is likely to take the annual figure to more than 30,000.
Certain other rules apply – you can only have £1,000 of assets, plus a vehicle worth up to another £1,000, and your surplus monthly income must be £50 or less.
If you qualify though, DROs can be a positive experience – 79% of people say their mental health actually improved after getting a DRO, and 96% of people said they couldn’t have dealt with what they owed any other way.
Meanwhile, the clock is also ticking on a major change to the rules on bankruptcy, which will make it much harder for creditors to petition for bankruptcy, or threaten it as a course of action in order to persuade a debtor to settle in full.
From October, the minimum amount owed for which bankruptcy may be petitioned is set to rise from £750 to £5,000, which is likely to shut out a lot of one-off invoices from the process.
The plan is to prevent bankruptcy from being threatened as a disproportionate measure, at a threshold that has remained unchanged since the mid-1980s, but it’s one less tool in the creditor’s debt recovery toolbox.
Ms Swinson said: “These changes will ensure that our debt relief schemes are updated so that they still meet their original goal of providing access to those who need them.
“They also ensure that bankruptcy, which has the most significant consequences, is reserved for those with sizeable debts.”
But R3, the trade body for business recovery professionals, were a little more cautious in welcoming the changes.
President Giles Frampton said: “We are really pleased the government has listened to the concerns of the insolvency profession and others about Debt Relief Orders and bankruptcy.”
“The rise in the petition threshold will require creditors to look at other options for the pursuit of low-value debts,” he added.
“While a bankruptcy petition is not always the most proportionate tool for this, it’s very important that the insolvency regime maintains a balance between protecting the interests of both debtors and creditors. How the new threshold works in practice should be monitored closely.”
If you would like to talk to a member of our team please call 0808 159 7338 or fill in our contact form.