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Bankruptcy and DRO changes to ease debt burdens 15 January 2015

Charities and groups working with the indebted have welcomed government plans to enable easier access to debt relief for financially vulnerable people.

The changes will allow approximately 3,600 more people a year with problem debt to enter into a Debt Relief Order (DRO) – a low cost alternative to bankruptcy for those with very low assets and income and debt which they are unable to pay. The maximum amount of debt that can be covered by these plans will increase from £15,000 to £20,000.

This will enable around 3,600 more people with low level debt to use DROs instead of opting for bankruptcy. DRO asset limits will increase to £1,000, plus a vehicle (worth not more than £1,000).

Mike O’Connor, chief executive of StepChange Debt Charity, said: “Increasing the DRO threshold to £20,000 is an important widening of access to this crucial form of debt relief for those on low incomes and with limited assets. Raising the creditor petition for bankruptcy to £5,000 is a much needed change that will prevent creditors making people bankrupt for an unreasonably small debt.”

Gillian Guy, chief executive of Citizens Advice said the changes would “help people who are in serious, unmanageable debt to find a way out. Raising the bankruptcy debt threshold and the debt relief order limit will increase options for people who would previously have had no choice but to declare themselves bankrupt.”

The government is also increasing the minimum level of debt for which someone owed money can force a person into bankruptcy from £750 to £5,000.
The limits were last revised in 1986. The maximum surplus income a person can have to qualify for a DRO will remain at £50 per month.

The changes come against a background of falling insolvency numbers since 2010. There have been140,861 DROs since their introduction in 2009. In 2013/2014 26,876 orders were made and 310 were revoked for a variety of reasons including exceeding asset limits.

Business minister Jo Swinson said: “Struggling with unresolvable debt can cause immense stress for families. 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.”

The changes come as a survey of DRO users showed 96% would have been unable to deal with their debts without DROs, and 79% said the process had a positive impact on their mental health.

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