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More help for vulnerable people in problem debt

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Written by: Emma Lunn
10/05/2021
The government is raising the total debt allowable for a Debt Relief Order from £20,000 to £30,000.

The change comes into force on 29 June and means more people will be eligible for Debt Relief Orders.

Debt Relief Orders were introduced in 2009 and 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 12 months. If your financial situation hasn’t changed at the end of this period, then all of the debts included will be written off.

Currently a DRO is only available if you owe less than £20,000, live in England and Wales, and don’t own your home. But this figure will rise to £30,000 from the end of June.

At the moment, to be eligible for a Debt Relief Order you need to have no more than £50 left over each month after you’ve paid your usual household expenses – this figure is going up to £75 from June.

The current rules also state that to be eligible for an order any car you own can’t be worth more than £1,000 – this goes up to £2,000 from June.

It is expected that more than 13,000 more people may use Debt Relief Orders in the next 12 months compared to 2019, an increase of nearly 50%.

Lord Callanan, minister for corporate responsibility, said: “Debt Relief Orders help those with problem debt get to grips with their finances, these changes will enable more people experiencing problem debt to get a fresh start.”

The new criteria follow a consultation earlier in the year. The changes are due to come into effect on 29 June to coincide with the end of the first 60 days of the government’s Breathing Space scheme, which began on 4 May 2021.

Peter Tutton, StepChange head of policy, research and public affairs, said: “We are pleased to see the Insolvency Service confirmation of increases to the asset limits that will enable more people to access Debt Relief Orders.

“DROs can act as a valuable form of ‘reset’ from debt for some people, and are likely to be particularly useful in the wake of pandemic debt. However, we very much agree that the changes need to form part of a wider review of the insolvency landscape, and we look forward to contributing to the government’s forthcoming call for evidence on this.”

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