New rules around debt levels and affordability will make it easier for people on low income to deal with their debts
What is a DRO?
A debt relief order (DRO) is a way for you to have your debts written off if you owe less than £15,000 (currently), and have very few assets and can’t afford at least £50 per month toward these debts. If you qualify, a specialist DRO team can apply to the Insolvency Service for you.
What’s the bankruptcy creditor petition limit?
This is the minimum level of debt that a person must owe to a creditor or lender before they can petition for your bankruptcy, in other words to apply make you go bankrupt. Currently standing at £750, the new rules will increase this to £5,000.
You can also become bankrupt by petitioning for you own bankruptcy as apposed to being made bankruptcy by someone else. Here you have to complete a financial statement and application form and hand it into your local county court along with your fee. We have a team that can do this for you.
These rule changes will make it easier for the financially vulnerable to manage problem personal debt and avoid them being ending up in bankruptcy for low levels of debt. From 1st October 2015:
- The amount of money a person owes (liabilities), in order to qualify for a Debt Relief Order (DRO) will increase from £15,000 to £20,000.
- The amount of money a person can have in assets, in order to qualify for a DRO will increase to £1,000, plus a vehicle (worth not more than £1,000).
- The maximum surplus income a person can have to qualify for a DRO will remain at £50 per month
- The level of minimum debt that can trigger bankruptcy will rise from £750 to £5,000. The bankruptcy creditor petition level was last set in 1986.
It is expected that following the changes to these rules, an additional 3,600 people a year will be eligible for a DRO.
More than 140,000 DROs have been entered into since they were introduced in 2009. A survey of those who have used them reveals that 96% would have been unable to deal with their debts without a DRO, and 79% said the process had a positive impact on their lives.
The changes to DROs will not disadvantage creditors, because eligibility for a DRO will continue to be restricted to those with very low realisable assets and no surplus income and therefore no realistic ability to repay their debts. Realisable assets means items that can easily be sold to generate money.
Evidence showed that DROs help some of the poorest and most vulnerable people in society make a new start and improve their mental well being.
The changes have come about following consultation by The Insolvency Service, that sought views from industry, debt charities and other interested parties on the operation of DROs and the bankruptcy creditor petition limit last year.
Consultation respondents generally thought that the level of debts that can trigger bankruptcy was much too low, as people can be put through the most serious of the insolvency procedures for a debt as small as £750.