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Debt Relief Orders: Consultation on changes to the monetary eligibility criteria

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We support the Insolvency Service’s proposed changes to the eligibility criteria for Debt Relief Orders (DROs). The current DRO eligibility criteria, in combination with the inaccessibility of other solutions, often leaves people without a solution to their debt problems.

The proposal would see the debt limit increase to £30,000, the budget surplus increased to £100 and the asset limit to £2,000.

They widen the availability of this solution without compromising its original intent which was to give people unable to afford bankruptcy an option to resolve their debts as well as providing a cheaper option to administer than bankruptcy for the Insolvency Service in cases where individuals have low incomes. On each area we support the proposals:

  • Raising the debt limit will give more people with large debts who can’t afford bankruptcy an option to resolve the debt problems
  • Increasing the budget surplus is a also a positive step as the current level of £50 means that many are still locked out of debt solutions as they can’t access DROs but are unable to raise the prohibitively expensive £680 fee for bankruptcy
  • We also support the increased asset limit. We generally find individuals recommended for a debt relief order have no assets. We would like to see the vehicle limit increased to match this asset limit as clients are often wary of trading in a car for one worth less than £1000 because of the high maintenance costs associated with such vehicles

We welcome these changes but would also like to see further action to improve DROs.

The FCA’s Woolard Review recommended that the £90 fee be looked at as many individuals struggle to raise this money. We would also like to see changes to the policy on debt missed off the application.

Where debts are found after the initial application these should be included as in bankruptcy and Breathing Space while there should be discretion in cases where these debts push people over the debt limit as revoking a DRO at this stage is costly for all involved.

This review should provide the impetus for a wider review of insolvency options.

Urgent action is needed to address lead generators and misselling in the IVA market while the fee for bankruptcy is far too high.

The Money Advice and Pensions Service (MaPS) are predicting an additional 3 million people needing debt advice because of the pandemic.

It’s vital that the debt solution landscape responds to this increased demand so that individuals can access solutions to resolve problems and hardship arising from the pandemic.

You can download our full response here.