From 6 April legislation will be altered to bring the arrangements for accessing DROs in line with the arrangements for entering bankruptcy, which will increase the number of people eligible to apply for a DRO.
Under current legislation individuals with a pension worth over £300 are not eligible for a DRO, even if the pension is small and not receivable for many years.
However the government has agreed to amend this loophole after completing a consultation prompted by debt advice agencies following a large number of cases where DRO applicants met the stringent eligibility criteria, but were denied access because of small pension pots.
The change has been hailed by debt charities, with Gillian Guy, chief executive of Citizens Advice, declaring that it will offer "some light at the end of the tunnel" for people whose best option is insolvency.
Guy said: "This change will address an issue that has been of great concern to us. Bureaux reported seeing numerous people on very low incomes have their applications rejected because of very small pension funds, despite meeting the rest of the criteria for a debt relief order."
DROs were introduced in April 2009 and are delivered in partnership with the professional debt advice sector.
Under the current procedure individuals must meet strict eligibility criteria of having assets valued at less than £300, debts of no more than £15,000 and surplus income of less than £50 per month.
Edward Davey, business minister with responsibility for the insolvency regime, said: "This common sense change will allow those who were previously unable to access a debt relief order, because they had accrued some rights to a pension, fair use of the insolvency regime."
A DRO lasts for 12 months during which time creditors cannot take debt recovery action without court permission. Debtors are freed from the debts listed in the DRO after 12 months if their circumstances have not changed.