The Government is to introduce Debt Relief Orders on the 6th April 2009, and these are to assist people with high levels of debt who have no possible means of paying their debts off (i.e. they have exhausted all other options). Debt relief orders offer an alternative to bankruptcy at a lower cost: bankruptcy costs almost £500, whilst debt relief orders carry a relatively small charge of £90.
There are strict criteria associated with the debt relief order: debtors must
- Have no other possible means of clearing their debts
- Have unsecured debts of less than £15000
- Have assets not exceeding £300
- Have a disposable income of less than £50 per month
- Reside in England or Wales, or must have lived or carried on business there for the last 3 years
- Be free of any existing bankruptcy order, bankruptcy restriction order or Individual Voluntary Arrangement, or they must not have been the subject of a debt relief order in the last 6 years.
If you are struggling with debt and think that you may qualify for a debt relief order, an approved intermediary (likely to be the Citizens’ Advice Bureau or a debt advice agency such as National Debtline or the Consumer Credit Counselling Service) will be your first point of contact.
They will go through your circumstances and, if it is deemed that a debt relief order is the best course of action, the intermediary will fill in an application form on your behalf. This is done online, and the fee of £90 is much cheaper than bankruptcy because the need to face a judge in court is bypassed, hence no expensive court costs.
Once the official receiver takes receipt of the application and fee, the debt relief order is passed, providing the applicant meets all the strict requirements. If the official receiver feels that any part of the criteria is not met, then he can refuse an application. Alternatively, if he requires further information, he can delay the order until such information is received – then the relief order will be either rejected or passed.
Certain debts cannot be included in a debt relief order – these are:
- Maintenance arrears
- Student Loans
Once a debt relief order is awarded, the details are entered onto the insolvency register and, like bankruptcy, the order lasts for 1 year. During this time, the debtor is protected and any enforcement action by creditors is suspended – however, interest may still be added to debts during this time, and if your financial circumstances improve during the year, you will be liable to pay these debts off. Credit reference agencies may access the information during this time and credit ratings will be adversely affected, but at the end of the 12 months, debts are discharged: this means that the debtor is debt free when the year is up.
Joseph Surtees, Policy and Research Officer at the Consumer Credit Counselling Service, says:
“The Consumer Credit Counselling Service’s (CCCS) position on Debt Relief Orders is that they can be a useful tool for the insolvent, especially those who lack the assets or income to apply for bankruptcy or an IVA. However, no form of insolvency should be taken lightly and CCCS would urge anybody considering going down this route to contact a free and independent debt advice provider to discuss their options. In 2009 CCCS expects to administer some 4,000 DROs”.
The Government is aware that this service may be open to abuse, and thus checks are periodically carried out: for example, the official receiver will investigate any objections from creditors regarding a debt relief order or may carry out his own investigations to clarify any information given.
If a debt relief order is awarded under false pretences and the official receiver is made aware of this, the order will be revoked immediately and the person involved may face civil or criminal penalties.
Finally, if a debtor’s financial circumstances improve during the 12 month period, they must notify the official receiver and will thus be expected to make alternative arrangements to clear their debts.