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Extra three million people will spiral into debt in 2021

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Around three million more people than before the pandemic will need help with problem debt by the end of 2021, spurring the government to propose changes to Debt Relief Orders (DROs).

The government is proposing to extend the eligibility criteria for DROs to help thousands more people benefit from the scheme.

DROs help people deal with existing debts so they don’t have to make payments and creditors can’t come after them to pay off the sums. After 12 months, the debts are written off.

There are certain conditions that need to be met, but The Insolvency Service is now consulting on changing the eligibility criteria to enter a DRO to:

  • increase the total amount of debt allowable to £30,000 (from £20,000)
  • increase the value of assets owned by the individual to £2,000 (from £1,000)
  • increase the level of surplus income to £100 (from £50) per month.

It comes as research from The Money and Pensions Service expects the demand for debt advice to increase by up to 60% by the end of 2021 and this is likely to lead to an increase in the need for debt relief.

Further, charity Citizens Advice estimated that six million UK adults have fallen behind on at least one household bill during the pandemic, with one in five of those who have fallen behind on their bills unable to afford essentials.

Business secretary, Kwasi Kwarteng, said: “Suffering from financial difficulties places a huge amount of stress on people’s mental health and wellbeing, which is why we are committed to giving more people who are struggling with debt a chance for a fresh start.

“Debt Relief Orders are a valuable tool for supporting vulnerable people to get to grips with their problem debts. Our plans to increase the eligibility criteria will mean many thousands more could benefit from this help.”

Phil Andrew, CEO of StepChange Debt Charity, said: “Lower income households with few assets are among those most deeply affected by debt during the pandemic. Extending eligibility for DROs will help to give more people a chance to avoid the long-term misery of being trapped by debt that they cannot afford to repay over a reasonable period.”

The consultation will run for six weeks and, subject to the consultation any changes are anticipated to be put in place in Spring 2021.

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