Thousands more people who are struggling in problem debt will be able to apply for their payments to be written off after an extension on current rules came into force at the end of June 2021. Debt Relief Orders (DROs) can now be used if you owe a maximum of £30,000, up from the previous limit of £20,000.
It means people will be given greater options if they are in arrears, including on bills such as council tax. People in debt with £75.00 or less leftover each month after covering bills and everyday expenses will be able to get a DRO – previously the amount was set at £50.00. Those with savings or assets worth £2,000 or less are now eligible for a DRO, this was previously £1,000.
A DRO means you do not have to repay debts for an agreed period, usually a year, and creditors cannot act against you. Previously the limit to apply for a debt relief order was £20,000 and anyone with debts over this amount had to go for a more complicated individual voluntary arrangement (IVA) or bankruptcy.
It is estimated that around 13,000 people a year will now be eligible for a DRO, although the support costs a one-off payment of £90.00 to access. The change to DRO rules follows a consultation by the insolvency service earlier this year. It also includes a doubling of the limit on the value of assets owned to be eligible.
DROs are aimed at people with relatively low levels of unmanageable debt who have nothing to offer their creditors, such as assets or disposable income, and for whom bankruptcy would be a disproportionate response. The order freezes your debt repayments and interest for a year. If your financial situation has not changed at the end of this period, then all the debts included will be written off.
Commenting on the news, Martin Kingman, CEO with Professional Legal Collections Ltd, said: “A Debt Relief Order is simpler and cheaper than other debt options. It you qualify then it is always a better option for you than an Individual Voluntary Arrangement as you do not have to make any monthly payments in a DRO, compared to paying for five or six years in an IVA”.
To get a DRO you will need to apply through a trained adviser who can make the application on your behalf to the Insolvency Service. The application costs £90.00 and can either be accepted, deferred until there is more information, or declined.
If you are turned down, you will be told why, and you can appeal the decision. If you are accepted, you will not have to make payments on the debts and the creditors will not be able to take any action against you, with two exceptions: landlords if you are in rent arrears and bailiffs who have taken your belongings. Other bills not included in the DRO will have to be paid as usual. If you are searching for more short-term support, you may qualify for a 60-day “breathing space” instead. This protects you from prosecution and bailiffs for up to two months.
A debt charity such as Citizens Advice or the National Debtline can help you. We are also here to offer guidance and support.