Government changes to DROs

Small pension holders now eligible

By Insolvency News, 1 March 2010. Posted in Personal

The government has announced plans to make it easier for people in financial difficulty write off their debts in Debt Relief Orders (DROs).

The Department for Business, Innovation and Skills has proposed changing the eligibility criteria for a DRO so that people with small pension pots can apply for the low cost debt relief solution.

DROs were introduced last April as a low-cost alternative to bankruptcy with debts less than £15,000, assets of less than £300 rising to £1,000 if they had a car, and less than £50 surplus income a month.

But insolvency practioners had complained that the process excluded individuals if they had built a small pension pot over £300.

In a recent survey by Citizens Advice Bureau (CAB) figures showed that 96.3 per cent of people were excluded from DROs because of their pension, and 78 per cent of these people had a pension fund of less than £5,000.

DROs were introduced last April as a low-cost alternative to bankruptcy with debts less than £15,000, assets of less than £300 rising to £1,000 if they had a car, and less than £50 surplus income a month.

But insolvency practioners had complained that the process excluded individuals if they had built a small pension pot over £300.

Ian Lucas, business minister, said: "Debt Relief Orders help people who would otherwise be trapped in poverty to get back on their feet. Following representations from independent money advisers, I’m proposing a common sense change to ensure that vulnerable people with a very small pension pot are treated fairly."

He said the government will consult on the proposed changes shortly.

But the government has also proposed changes to the annual fee structure to ensure more cash is recovered earlier in the process so that the cost of the regime is shared by the debtor and creditors.

The department will increasing a debtors deposit on a bankruptcy petition from £360 to £450, and raising a creditor’s deposit on a bankruptcy petition from 6 April this year. And the government will be hiking the administration fee for a company’s winding up order from £2,610 to £2,235.

Lucas said: "We have always made it clear that we expect those petitioning for bankruptcy to pay their fair share of the cost and that the taxpayer should not be responsible for the cost of bankruptcy."

But Sue Edwards, Citizens Advice Bureau Head of Consumer Policy, warned that she was concerned that the 25 per cent increase in the amount people must pay as a deposit to go bankrupt will prevent more people from seeking the right debt solution.

She said: "We already see many CAB clients unable to afford to go bankrupt even though it is the best option for them. This increase will only exclude more people."

Comments What do you think?

  • S Coast | 08:32 2 March 2010

    Insolvency processes were brought in to provide debtors with relief from the burden of debt. It seems somewhat odd a labour government should put such relieving provisions beyond the reach of those who most need them. This is effectively creating an underclass cut off from help, consigned to DMP's for ever!!!

  • M Williamson | 08:40 2 March 2010

    What a farce!! I've always considered it to be somewhat ironic that a debtor must pay (in cash!) to make themself bankrupt. Hiking the debtor petition fee will simply put a legitimate insolvency process beyond the reach of even more people. It's not a debtor's fault that the present Government needs as much money as possible following the bank bailout and with the RTLU's retaining more cases with assets in, the IS must be approaching self-funding levels now...

  • Anonymous | 09:19 2 March 2010

    What is wrong with you all !!!! Few debtors are genuine cases of a lost job or a reason for their predicament, beyond financial incompetence.

    Most are spendthrifts who simply cannot manage how to use their credit cards. They cannot afford £500 to petition, but are still able to smoke 40 cigarettes a day, go to the pubs and buy scratchcards. It's decent tax paying people like the rest of us that deserve sympathy. Loads of these debtors have accrued liabilities as a result of too many holidays, too many trips to Dixons/Curry's and are in financial straights even though the mortgage costs on the purchase of their former local authority owned home (which they secured for 20% of market value) have dropped significantly. They have even saved on having to buy fake Armani and Dolci & Bannana as a result of the poipularity of Primark !

    Enough of this entirely miss-placed pity, please.

    DRO's - If you owe less than £15k, are below retirement age, then you can pay the lot back - even if it takes you ten years.

  • Pav | 10:06 2 March 2010

    I am seriously concerned regarding the Bankruptcy costs being increased. More and more firms, who may or not be based in Dorset, appear to be targetting people who are indebted and charging them vast sums to assist them with bankruptcy petitions.
    If the fees are hiked, firms such as these will be more attractive to individuals who want to spread the cost of entering bankruptcy.
    What would be wrong with a debtor who wishes to petition for their bankruptcy being entitled to apply for a order of court for say £35, to give them a period of protection for say 90 days, whilst they raise the deposit. This could be akin to an interim order under the Insolvency Act, which could not be obtained more than once in a 12 month period.

  • Mark in Debt Management Land | 10:44 2 March 2010

    When offering debt support to individuals who come to our organisation via different avenues, we often advise that Bankruptcy and DRO's are a viable options only yo be ruled out with pension funds and the cost of decalring yourself bankrupt. Hopefully more people can do DRO's than the 1 in 20 that apply to the CAB as above. It will, however, mean more and more people cannot afford Bankruptcy which means Debt Management Plans will have to be looked at more and more for people with very low surplus income, so the government and the creditors need to get the balance right when dealing with this as offering as little as £80 a month for debts of £10K plus is not good advice!!!

  • mip | 17:52 4 March 2010

    @ M Williamson

    Don't know whether you read the consultation on the debtor's petition process, but the proposal that debtors can pay the fee/deposit online using a credit card sounds like conspiracy to defraud to me!

  • Oop North | 15:51 5 March 2010

    Going bankrupt for £650 is a bargain, the average bankrupt has £33, 000 of unsecured debts, the cost of bankruptcy is less than 2%, where else can you get such a good deal if you have no assets and can't pay your creditors.

  • Anonymous | 19:30 17 June 2010

    I have laawys worked full-time. 2 years ago I had an accident and had to go back to work partime after a year off. In this year with no income or benefits became indebted with credit cards and a loan to try and pay them off. I am now paying a small amount each month, the most I can afford. Can't get a DRO because of a work pension,it's crazy, if i didn't have the pension and was expecting the government to keep me when I retire I'd get one!!

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