An order lasts for 12 months, during which period any creditor named in the order can only take action to recover the debt if they obtain authority from a court.
If the debtor’s circumstances remain unchanged after a year, the debts are written off and the debtor is discharged. An applicant’s assets should not exceed £300 (excluding an additional allowance for a vehicle) and disposable income must be no more than £50 a month after tax, national insurance and reasonable household expenses.
Mark Sands, head of personal insolvency at KPMG, says that with soaring unemployment and the collapse of many owner-managed businesses, the number of insolvencies in England and Wales could rise by about 40% this year to more than 150,000.
'DROs will bring new people into the insolvency system,' he said. 'We are talking about people with very little income, no assets and debts of £15,000 or lower.
'Until now, they are the sort who would have made token payments on the debt or simply laid low until the six-year limitation on debt enforcement was passed.'
But while Sands broadly welcomed DROs, they include a number of controversial aspects.
- Court approval will not be needed. An Official Receiver can agree a DRO without reference.
- For someone seeking a DRO the first point of contact will be Citizens Advice or some similar non-profit organisation, raising fears of untrained staff being taken in by serial debtors.
- The local Official Receiver, who has the final say, will be presented only with online information compiled by the non-profit organisation. Only by monitoring failure rates of DROs proposed by each organisation will the Official Receivers be able to spot if such an outfit is a soft touch.
For creditors, the introduction of DROs could mean writing off at least £1.1 billion in consumer debt in 2009.